UPDATE 5-Batista exit from MPX begins breakup of EBX empire

Thu Jul 4, 2013 4:06pm EDT

* MPX halts share sale as market conditions deteriorate

* Shares will be sold in $380 mln private placement instead

* Batista's troubles mirror change of fortunes for Brazil

* Cash to be used to help MPX become 'independent entity'

By Guillermo Parra-Bernal and Jeb Blount

SAO PAULO/RIO DE JANEIRO, July 4 (Reuters) - Brazilian billionaire Eike Batista's EBX Group, a once high-flying industrial conglomerate, began breaking up on Thursday, the latest victim of a decade-long commodities boom that has come to a screeching halt.

Batista, the founder and vital force behind the oil, energy, port, shipbuilding and mining group who branded all his companies with an "X" for "the multiplication of wealth," stepped down as chairman of MPX Energia SA, the embattled EBX Group's most promising company.

The electricity generation company will also change its name by October to position itself outside the EBX Group, MPX executives said on a conference call.

The move crosses Batista out of MPX as the value of his wider empire, once valued at about $60 billion, crumbles. Once Brazil's richest man, Batista's personal stake in EBX has shrunk by more than $20 billion in the last year, as promises of oil wells, ports, power plants and ships failed to materialize.

Most EBX Group shares are now almost worthless and debt trades at levels suggesting default, leading investors to question Batista's promise to invest more. With Brazil's economy struggling, its currency weakening and Chinese demand - the driving force behind the Brazilian boom of the last decade - slowing, investors have little appetite for new investment.

"Batista's plight is like Brazil's, a sign we can no longer ignore the country's plight," said Alexandre Barros, founder of Early Warning, a Brasilia political risk consultancy. "Batista got investors excited about Brazil's potential, which was real, but like Brazil, Batista failed to deliver."

Batista's departure came after MPX canceled a 1.2-billion-real ($528 million) sale of stock to controlling and minority shareholders. The offer became untenable as market conditions deteriorated, the company said in a securities filing. Grupo BTG Pactual SA, the investment bank controlled by Brazilian billionaire Andre Esteves and MPX's advisor on the plan, recommended the decision, the filing said.

Instead, MPX will sell 800 million reais of stock at 6.45 reais a share in a so-called private placement in which Batista, partner E.ON SE, a German utility, and BTG Pactual will be allowed to participate, the filing added.

"This is very good for MPX," said Ricardo Correa, energy company analyst with Ativa Corretora, a Rio de Janeiro brokerage. "MPX is the best company in the group and they are working quickly to insulate the company and separate it from the risk associated with Batista's EBX group."

Others are concerned, however, that the cancellation of the public stock offering in favor of a private placement shows reduced willingness by BTG Pactual, which had planned to guarantee the placement of the offer, to back EBX.

"The justification for cancelling the 1.2 billion real public equity offering with the 10 reais a share 'guarantee' by both BTG and E.ON was 'market conditions,' but it seems like BTG decided to pull its firm offer," said Lilyanna Yang, an energy analyst with UBS Securities in Sao Paulo.

BTG Pactual, which declined to comment on the deal, in March tossed Batista and EBX a lifeline of loans and investment banking advice that temporary halted share declines and helped move EBX closer to a restructuring.

While considering the changed share offer negative, Yang said she welcomed the MPX rebranding and Batista's departure from the board as "positive."

SHARES RISE

MPX stock, which had fallen 42 percent this year, jumped as much as 13 percent before trimming gains to 9 percent in late afternoon trading Thursday in Sao Paulo.

OGX Petróleo e Gás Participações SA, EBX's flagship oil company, rose as much as 26 percent before trimming gains to 7.7 percent, iron ore miner MMX Mineração e Metálicos SA rose 4.7 percent, and port and industrial real estate company LLX Logistica SA rose 2.5 pct. Shipbuilder OSX Brazil SA fell 3.5 percent.

For Adriano Pires, founder of the Brazil Infrastructure Institute, a Rio de Janeiro energy think tank, Batista's departure from MPX and the gains in many EBX shares on Thursday show investors think breaking EBX apart may be the best way to protect their investments.

"They have to do something and do something fast to isolate the different parts of the group from the backlash against Batista so that Batista and EBX can have the space to stop the rot and restructure the group," Pires said.

E.ON TAKES CHARGE

Under the now-scrapped stock-sale plan, shares were to be sold at 10 reais each, as part of E.ON's $1 billion purchase in March of a stake in MPX. Under the new plan, E.ON has agreed to buy up to 367 million reais worth of stock in the private placement, while BTG Pactual committed to buy the remainder.

E.ON owns 36 percent of MPX, a portion that could increase to as much as 38 percent under the private placement.

While Batista leaves MPX's board, he still owns 29 percent of MPX and shares control with E.ON through a shareholder agreement, MPX said on the call, adding that there is no guarantee he will buy new stock in the offer.

Batista's stake will shrink to 24 percent if he fails to buy any MPX stock, MPX said. EBX officials did not immediately respond to telephone and e-mail requests for comment.

"We see a wide range of opportunities as a result of this capitalization," MPX Chief Executive Eduardo Karrer said on Thursday's conference call. "This is part of the evolution process of MPX as an independent entity."

IN NEED OF CASH

Proceeds from the sale will be used to "strengthen the company's balance sheet and prepare it for growth." MPX wants to participate in upcoming auctions for rights to sell thermal and wind power to the national grid through year-end, Karrer said.

MPX needs fresh capital to finance about 600 million reais of generation plant investment that will transform it from a start-up to a fully operating power company.

The MPX private stock sale should be concluded within the next 40 days, company executives said.

The MPX move also follows similar dramatic developments at other EBX companies.

On Monday OGX decided to withdraw three oil fields from its plans, reversing a decision to declare the areas commercially viable and said its only producing offshore field will likely stop pumping oil next year.

That prompted the Espirito Santo Investment Bank in Sao Paulo to drop coverage of OGX on Thursday.

"When we ran the numbers, and considered all the changing information we just couldn't figure out how OGX can be a going concern in the future," said Oswaldo Telles, Espirito Santo's energy company analyst in Sao Paulo.

EBX has also put investors on notice that Batista is looking for buyers for all or part of his stakes in LLX, owner of the Port of Açu north of Rio de Janeiro, and MMX, which owns iron ore mines and an iron ore port west of Rio.