Eike Batista May Be Too Big To Fail

You know what they say — if you owe the bank $US1,000 the bank owns you. If you owe the bank a million dollars your own the bank.

Now turn that million dollars into billions, and make that bank thousands of investors, at least one very powerful sovereign wealth fund, and an entire country.

Put all that together and you have former Brazilian billionaire tycoon Eike Batista’s situation.

After loosing $US2 million a day last year and having a $US37 billion dollar fortune evaporate before his eyes; After the bankruptcy of his flagship oil and gas company OGX (with its sister shipbuilding company OSX likely to follow)]; After the sale of many assets/controlling stakes in the companies he built, Eike Batista is still asking investors for money to rebuild his empire.

And they are giving it to him.

Bloomberg reports that OGX creditors have agreed to give Batista $US200 million so that he can continue developing the oil fields that, in part, were the start of the of his woes. Last year it became clear that Batista’s fields would not produce the volume of oil expected. Batista’s stock plummeted 90%. Bondholders, like PIMCO, didn’t get paid in October. OGX went bankrupt.

Even before OGX was officially in the hole, Batista was asking creditors for around $US250 million keep the company afloat through April. Now he’s got some of that, and he can use that money to start work at the Tubarao Martelo offshore field. It may hold as many as 108.5 million barrels of oil.

So Batista has that cash, and he’s got a little debt relief from creditors too.

Mubadala, Abu Dhabi’s sovereign wealth fund, has taken a 25% haircut on Batista’s debt, taking it from $US2.3 billion to around $US1.6 or $US1.7 billion.

Back in the spring of 2012, the fund made a deal to provide Batista with $US2 billion, the details of which are still mostly unknown.

Meanwhile as goes Batista, so goes Brazil. The erstwhile billionaire’s six companies — OGX, MPX, LLX, MMX, OSX and CCX — all held together under EBX, were once powerhouses on the Brazilian stock exchange, the Ibovespa.

However, as of August 1st, the six companies have lost a combined $US9.7 billion in 2013. All 300 publicly traded companies in Brazil have lost $US203 billion in the same period.

Three of Batista’s companies — OGX, LLX, and MMX — have been among the 10 biggest losers in the Ibovespa Sao Paolo Stock Exchange Index.

And MMX, an iron ore company, has contributed to the Ibovespa’s most recent malaise. This week the exchange sunk lower than any other in the world. Its loss was prompted by sinking shares in Petrobras, Brazil’s state oil company (paging Jim Chanos) and MMX’s earnings, which posted wider losses than analysts expected.

So it isn’t just Batista that’s hoping a cash injection will revitalize his empire, it’s all of Brazil as well.

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