Midas touch can’t save Brazilian billionaire’s empire


Eike Batista, the Brazilian tycoon who ranked as the world’s eighth-richest person last year, is no longer a billionaire as reported on July 25, 2013. (Patrick Fallon/Bloomberg)
August 10, 2013

It was 2008, Brazil’s economy was in its fifth-straight year of robust growth, exports were expanding fast and the government was euphoric about the newly discovered oil, billions of barrels of it, just waiting to be mined offshore.

Brazil appeared to have arrived on the world stage. And positioning himself to play a decisive role in fulfilling the country’s destiny was a man as big and brash as the new Brazil itself.

Billionaire Eike Batista, a flamboyant former powerboat racer with a frenzied sales pitch, predicted his enterprises would make him the world’s richest man. On top of the world, just like Brazil.

“I want to surpass Bill Gates in five years,” he told the newspaper O Estado de Sao Paulo that year. “Brazil has to be No. 1.”

By last year, his wealth — concentrated in sectors such as oil and shipbuilding that are priorities for Brazil’s economy — was estimated at $34.5 billion, making him the world’s seventh-
richest person, according to Forbes Magazine. But what over-optimistic investors and auditors now say they failed to see was that his companies were mostly under construction, loaded with debt, eating up capital and years away from turning a profit.

Underneath the glossy surface and Batista’s sunny sales pitch, investors were beginning to panic, and the empire was starting to crumble, just as Brazil’s big economy was foundering.

In recent weeks, Batista’s EBX Group — the holding company for his once-high-flying enterprises — has nearly collapsed as investors abandon the tycoon.

As of late last month, Batista, 56, was no longer a billionaire but rather worth about $200 million, according to the Bloomberg Billionaires Index. The oil-
producing arm of EBX pumps only a few thousand barrels of oil a day, and the ports he envisioned as export gateways lie largely listless.

To some, Batista’s tumble is a parable for what is happening to Brazil itself. The country that had been a Wall Street darling from 2003 through 2010 is still solid economically. But growth has been dreary for nearly three years, demand for commodities is down and its stock market is among the world’s worst-
performing.

A once-popular government also is struggling to placate the simmering discontent that sparked nationwide protests in June against corruption, substandard public services and the kind of cronyism that has benefited well-connected businessmen, including Batista, whose name inspires ire among many Brazilians.

“Now reality has set in, and it’s pretty clear that despite the euphoria and optimism, the overconfidence has not treated Brazil all that well,” said Fergus McCormick, who tracks Brazil for the DBRS rating agency in New York. “The repercussions are that it’s settling into a far lower pace of growth, which is not enough to meet expectations.”

The outlook, though, was anything but dire as recently as last year for the six intertwined companies under Batista’s command.

‘Idiot-proof assets’

The flagship was the oil company, OGX, which earlier this year was the country’s No. 2 oil firm by market value. The shipyard OSX was created to build the mammoth platforms needed to pump oil offshore. Batista’s LLX constructed two “super ports” outside Rio that would export commodities the world over.

MMX mined for iron ore, and MPX generated electricity. There was even a luxurious Chinese restaurant, Mr. Lam, popular among politicians and captains of industry.

Freewheeling and comfortable with the media, Batista in numerous televised interviews characterized himself as a risk-taker but one whose enterprises would generate riches that had few limits in the new Brazil.

“We call it idiot-proof assets,” Batista told CNBC in 2011, referring to the companies whose names end in X to signify the multiplication of wealth.

The problem was that the oil company OGX, which Batista said would pump 1.4 million barrels a day by 2019, did not deliver, said Julio Bueno, secretary of economic development for the Rio de Janeiro state, whose governor, Sergio Cabral, has had close ties to Batista.

EBX Group, built like an inverted pyramid with OGX serving as the base, began to feel the tremors.

“We all know what happened — the truth was that there was a super overvaluation,” Bueno said, noting the immediate effects on Batista’s shipbuilding and port-development branches. “That led the market, which had overestimated his company, to lose credibility in the EBX Group.”

In a recent lengthy article for two leading newspapers here, Batista apologized to those who had bet on his companies. He said he had invested $4 billion of his own money in his X firms.

“Who most lost with the fall in value of OGX was one shareholder: Eike Batista,” he wrote.

Batista also said that auditors were partly to blame for having estimated that OGX had 10.8 billion barrels of oil to extract. “I profoundly lament not having confirmed the forecasts,” he said.

But here in Rio, where he was once a staple in the society pages, Batista is seen as having inflated the value of his companies.

An executive who worked with Batista described him as decisive and “probably the best salesman I have ever seen in my whole life.” But the executive also said Batista didn’t like to hear bad news, leading underlings to issue overly rosy prospects.

“He’s very good at creating things and having ideas,’” said the former colleague, who spoke on the condition of anonymity because of the delicate nature of his comments. “But Eike never, ever operated something in his life.”

The executive added: “What he does is he sells the future, he sells ideas.”

Those ideas, though, and Batista’s larger-than-life story, found an eager audience.

Government’s losing bet

Though raised in affluence, the son of a former mining minister, Batista wrote in his autobiography of an almost primal need to make it on his own. In his 20s, he braved malaria and a notoriously unstable economy to find gold in the Amazon, eventually making his first $1 billion.

He wrote that his 30-year career was characterized by “challenges overcome, success and a proven record of meeting commitments.”

And it wasn’t just investors who believed him. The government of President Dilma Rousseff — and before her, President Luiz Inácio Lula da Silva — saw Batista as a new kind of business mogul who could spearhead the development of vital sectors: oil, shipbuilding, ports and logistics.

“He became strategically important for the government,” said Roberto Moraes, a researcher at the Federal Fluminense Institute here who studies Batista’s companies. “Brazil really didn’t have a national player to invest in these areas. So they bet on him, no matter how flamboyant or how much of a self-promoter he was.”

For Batista, that translated into licenses for vast projects, like the Porto do Acu — the Acu Port — which led to the displacement of hundreds of people. The government’s development bank, BNDES, also provided Batista’s companies with $4.7 billion in loans, which has sparked criticism here.

“There was a loosening of regulations leading to loans,” said Cesar Colnago, a congressman from Brazil’s main opposition party who has been pressing for BNDES to reveal how much of the loans value is outstanding.

Moraes, the researcher, said much of Batista’s empire still could thrive. There are two ports that could take off once Brazil’s economy bounces back. The oil company also could strike a big find or be rescued by deep-pocketed investors.

But Moraes believes Batista will have to sell.

“It’s hard to believe that the whole pyramid will fall and nothing will survive,” Moraes said. “But what is clear to me is that Eike won’t be there.”

With bankruptcy looming, Batista says he is restructuring and predicts a comeback.

“Each day,” he wrote in his newspaper article, “my head simmers with new ideas that are born from nothing and take shape, little by little.”

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