RPT-Brazilian banks BNDES, Caixa face biggest exposure to EBX woes, BofA says

Tue Jul 2, 2013 4:51pm EDT

* Exposure may be 'underestimated' due to poor disclosure

* BNDES appears most exposed bank in Brazil to Grupo EBX

By Guillermo Parra-Bernal

SAO PAULO, July 1 (Reuters) - Brazilian state-run lenders Caixa Econômica Federal and BNDES have the largest loan exposure to debt-laden Grupo EBX, Bank of America Merrill Lynch said on Monday, as markets assess risks stemming from years of hefty borrowing by billionaire Eike Batista's mining and energy conglomerate.

Although available data on loan exposure to the Rio de Janeiro-based group is limited, risk is concentrated at some of the nation's major banks, analysts led by Alessandro Arlant said in a note. Shares of EBX-controlled companies tanked on Monday after oil producer OGX Petróleo e Gas Participações SA declared several projects unfeasible.

The analysts concluded that exposure is concentrated in five Brazilian banks, chiefly state development lender BNDES and Caixa, the nation's largest mortgage lender. Private-sector lenders Banco Bradesco SA, Itaú Unibanco Holding SA and Grupo BTG Pactual SA are next on the list, Arlant and his team said.

While Arlant estimates the five banks' loan exposure to EBX at 9.42 billion reais ($4.2 billion), the number may be "underestimated" amid poor disclosure and difficulty knowing how much of that exposure is collateralized. In recent months, investors have balked at the group's complex structure, its appetite for debt and, in the case of banks, the existence of guarantees and undrawn, committed credit lines.

A spokeswoman for Bradesco declined to comment on the report. A spokeswoman for BNDES did not comment, saying that some contracts with clients are subject to banking secrecy rules. Calls made to Itaú, Caixa and BTG Pactual spokespeople were not immediately answered or returned.

COLLATERAL DAMAGE

For years, Batista put shares of some of the companies he controls through EBX as collateral in exchange for loans that he used to build oil platforms, develop wells, build ports and mine for iron ore. In recent months, Batista has reversed course and is currently selling assets and repaying debt to reduce requirements on some of that collateral.

At the end of last year, Batista's six publicly traded companies had a combined net debt of about 15 billion reais, according to Thomson Reuters data. That number, which almost tripled since 2010, only rose as the companies posted losses exceeding 1 billion reais last year.

According to the analysts, BNDES had by far the largest exposure to EBX at the end of March - a total 4.9 billion reais that represented 5.8 percent of the lender's regulatory capital. BNDES is the main source of long-term corporate loans in Brazil.

Brasilia-based Caixa had total exposure of 1.4 billion reais, or 3.4 percent of its regulatory capital, to EBX, mainly to embattled shipbuilder OSX Brasil SA, the note added. Bradesco had disbursed 1.25 billion reais, and Itaú a total 1.24 billion reais as of the end of the first quarter. This represents 1.3 percent and 1.4 percent of their regulatory capital, respectively.

In the case of BTG Pactual, the investment-banking giant controlled by billionaire André Esteves, exposure was estimated at 649 million reais, mostly to electricity generator MPX Energia SA, the note added. "However, given its smaller size relative to larger commercial banks, BTG had exposure of 4.3 percent of its total regulatory capital," Arlant and his team wrote in the report.

All but one of EBX's six traded companies has lost more than 90 percent of their value compared with record highs, and the bonds of OGX, EBX's flagship unit, are trading for about 20 cents on the dollar.

Batista, one of Brazil's most successful entrepreneurs during a decade-long commodities boom, saw his $30 billion fortune shrink to $10 billion this year.

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