Eike Batista's Flagship Company Is Now Bankrupt

Out with a bang, that’s the least we can say for Eike Batista.

After a year of agonizing losses, after seeing 99% of his $US34 billion fortune fall away, the Brazilian tycoon has finally put OGX, his flagship oil and gas company, into bankruptcy proceedings, according to Bloomberg.

The company owes $US3.6 billion worth of bonds issued on the international market, and $US500 million to suppliers.

On October 1st, OGX missed a $US45 million interest payment to the company’s bonhondholders, initiating an attempt to negotiate with them to keep the company alive til April. He would need $US250 million to do it, he said.

Otherwise, OGX would run out of money in December.

Negotiations for such a restructuring fell yesterday, and according to Brazilian paper, Valor International, one of the major sticking points was OGX’s relationship with another one of Batista’s companies, shipbuilder OSX.

(Batista has 6 interconnected companies, held together by his holding coming EBX.)

Here’s how it went down, according to Valor:

The documents disclosed by OGX showed the company proposed that creditors converted their bonds into 57% of the business. Mr. Batista and current shareholders would have 10%. OSX would have 14%, because of credits of about $US1 billion, and the remainder would be split between new investors and suppliers.

Creditors, for their part, asked Mr. Batista to put $US500 million in the company, with his stake and that of current shareholders reduced to 5% of the post-agreement company.

The bigger sticking point, however, was about the commercial relationship with OSX. Creditors wanted to reduce the value of the daily rent of OSX-3 to $US150,000 from the agreed-upon $US400,000 — because of underutilization of the structure due to lower field productivity. In addition, they wanted the right to break the contract in three years without penalties in three years and also restricting OSX credits with OGX to $US500 million — half of what the shipbuilding company alleges being owed.

OSX as a sticking point is key, because the company depends a lot on OGX orders for its business. Obviously shareholders wanted to reduce that dependence, which would’ve been brutal for Batista’s flailing empire as a whole.

OSX, for its part, is in the midst of a a major cost cutting, asset selling regime. So perhaps, now that Batista has cut off this poisoned OGX limb, he can save the rest of his body.

We’ll see.

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