Brazil, Fortune and Fate Turn on Billionaire
Brazil, Fortune and Fate Turn on Billionaire
A floating oil production and storage unit belonging to the shipbuilder OSX, part of Mr. Batista’s group of industrial holdings.
By PETER LATTMAN and SIMON ROMERO
Published: June 23, 2013
When the Brazilian billionaire Eike Batista appeared on the Charlie Rose show in 2010, he and his country were on a roll.
The rise and fall of Eike Batista mirrors Brazil’s sudden reversal of fortune.
Brazil’s economy, driven by a worldwide commodity boom, grew a blistering 7.5 percent that year. And Mr. Batista’s prodigious holdings — spanning oil, mining, shipping and real estate — were soaring in value. In the interview, Mr. Batista was asked how rich he would become over the next decade.
“A hundred billion dollars,” he said, an amount that would most likely have made him the wealthiest person in the world.
Today, with the Brazilian stock market and the value of its currency falling as mass demonstrations hobble the country, Mr. Batista’s billions are evaporating. From a peak of $34.5 billion in March 2012, his wealth has dropped to an estimated $4.8 billion, according to the Bloomberg Billionaires Index. His lenders are growing anxious, and there are concerns that he might have to reorganize — and possibly lose control of — his dwindling empire.
The rise and fall of the charismatic industrialist mirrors Brazil’s sudden reversal of fortune. After years of economic expansion, the South American nation has begun to sputter. Inflation has become a major concern. Brazil’s stock market index has declined about 23 percent this year, the most of any large country. This month, Standard & Poor’s cut its outlook on Brazil’s credit rating to negative, citing slowing growth and weakening finances.
And then there are the street protests spreading across Brazil, stunning the country’s political and business establishment. With outbursts of violence, the protests, initially caused by an increase in bus fares, have grown into a broad questioning of the government’s priorities. The protests shook an array of cities over the weekend, with somewhat less intensity than in previous days, and organizers promised a new round of demonstrations in the days ahead.
Mr. Batista’s conglomerate, as an emblem of the nation’s industrial mettle, ranked among the government priorities now being questioned, receiving more than $4 billion in loans and investments from the national development bank. While protesters have not focused much ire on Brazil’s economic elite, there has been a building resentment toward the fact that governing structures subject to corruption in Brazil remained largely the same throughout the long economic boom, as authorities channeled huge resources of the state to projects controlled by tycoons.
The protesters have directed much of their anger toward political leaders, some of whom are close to Mr. Batista, like the governor of Rio de Janeiro, Sérgio Cabral, to whom Mr. Batista occasionally lent his private jet and who found demonstrators camped in front his home.
“Eike Batista assembled an empire thanks to colossal financing from the Brazilian government,” said Carlos Lessa, an economist and former president of Brazil’s national development bank. “But his explosion of wealth and prominence on the global stage came with risks, as the government itself and investors are discovering now.”
Mr. Batista built his fortune by selling investors on the potential of Brazil, forming companies that would benefit from the country’s rich oil fields, vast mining resources and fast-growing middle class.
But over the last year, investors in Mr. Batista’s six publicly traded businesses — none of which are profitable — have unloaded their shares amid disappointing projections, missed deadlines and a heavy debt load.
“He bundled wind and sold it,” said Miriam Leitão, an economic historian and columnist for O Globo, a leading Brazilian newspaper. “The euphoria fooled a lot of people.”
Now Mr. Batista is shedding assets and raising cash. In April, he dumped a large stake in his electric power company. He has put a private jet, a $26 million Embraer Legacy 600, up for sale. He is seeking a partner for Rio de Janeiro’s landmark Hotel Glória that he bought in 2008, a project that was supposed to be ready for the 2014 soccer World Cup but is mired in delays.
On Sunday, the newspaper Folha de São Paulo reported that Mr. Batista’s offshore construction company, OSX, had defaulted on a payment of more than $200 million to Acciona, a Spanish construction company. A spokeswoman for Mr. Batista disputed the report, contending that OSX has been in negotiations with Acciona over “obligations.”
In a statement, Mr. Batista rejected speculation that his business empire could be heading toward a collapse. Referring to his recent sale of stock in his own flagship oil company, OGX, Mr. Batista called the move a “minimal timely adjustment” related to the “reduction of the cost of debt among creditors.” While the move eroded confidence by investors, he emphasized that he had no plans to do so again.
There was a time when Mr. Batista personified Brazil’s emergence as a world economic force. The son of a former president of the Brazilian mining giant Vale, Mr. Batista was born to privilege. He earned his first millions buying gold from remote mines in the Amazon and then acquiring gold mines in Brazil and Canada.
Since the middle of last decade, Mr. Batista, through his EBX Group holding company, has formed six listed businesses: OGX (oil) and OSX (offshore equipment and services to energy companies), as well as MMX (mining), LLX (logistics), CCX (coal) and MPX (power). The X in each company name is meant to symbolize the multiplication of wealth.
Mr. Batista, 56, lives large and relishes the spotlight. He is a onetime champion speedboat racer, and his former wife was a Playboy cover girl. In Jardim Botânico, an upscale district of Rio, he opened a lavish Chinese restaurant, called Mr. Lam, where he entertained business visitors from the Far East. For a time, he parked his Mercedes-Benz SLR McLaren, which sells for about $450,000, in his living room. He had a memoir published in 2011 with the title “The X Factor: The Path of Brazil’s Greatest Entrepreneur.”
That book now looks in need of an afterword. Consider the ups and downs of OGX, the oil company and once one of Mr. Batista’s biggest holdings. In 2008, OGX raised $4.1 billion in the Brazilian stock market in what was then the country’s largest-ever I.P.O. But last June, after OGX missed its production forecasts by a wide margin, its shares tanked, and have fallen about 90 percent. On Friday, three of its five independent board members, including a former Brazil finance minister and a former Supreme Court justice, were reported to have resigned.
Skepticism is building beyond the ranks of his own corporate boards. “For both him and Brazil it’s time to talk less and deliver more,” Exame, the nation’s top business magazine, recently said in an overview of the woes at his companies.
There is also the decline last week in the stock of CCX, his coal business. Shares dropped 37 percent on Thursday to a record low after Mr. Batista canceled plans to take the business private. Mr. Batista said in a statement that the tumult in Brazil’s stock market “doesn’t represent an ideal environment to sustain the current terms” of the deal.
If Mr. Batista’s holdings continue to diminish in value, analysts say that his lenders, which include some of Brazil’s biggest banks, could push him into a restructuring that could cost him control of his companies.
The crisis at his empire is unfolding as Brazil is grappling with a decline in prices for some of the commodities the country exports, and ambitious infrastructure projects across the country face delays. While growth slowed to less than 1 percent in 2012, Brazil’s economy is not in crisis. Economists still expect the economy to grow about 2.5 percent this year, even as market turbulence shakes Brazil and other developing countries.
The sudden emergence of protests in more a hundred cities is putting greater pressure on authorities to lift the economy from its slowdown.
Aside from his business woes, Mr. Batista has also come under scrutiny because of his family. In March 2012, his son, Thor Batista, was driving his father’s McLaren when he struck a bicyclist and killed him instantly. This month, a Brazilian jury convicted Mr. Batista, 21, of vehicular manslaughter. He avoided prison, but was banned from driving for two years and fined about $500,000. His lawyers said they would appeal.
Mr. Batista has maintained a brave face through the losses, reminding investors that his companies still have billions of dollars of available cash. He has also taken to social media to fight back, telling his 1.3 million Twitter followers that anyone who bet against him would be “caught with their pants down.”
Jack Deino, a fund manager at Invesco, appears willing to take that risk. After acquiring a big position in the bonds of the oil concern OGX, he sold his entire stake a year ago after the company announced the major production shortfall.
“Batista built his businesses with a whole lot of salesmanship and hype,” Mr. Deino said. “I feel like I’ve been burned and won’t be touching any more of his ventures.”