RIO DE JANEIRO/SAO PAULO Brazilian billionaire Eike Batista's EBX Group, a once high-flying industrial conglomerate, began breaking up on Thursday, the latest victim of a screeching halt in a decade-long commodities boom.
Batista, the founder and vital force behind the oil, energy, port, shipbuilding and mining group, stepped down as chairman of MPX Energia SA MPXE3.SA, the embattled EBX Group's most promising company. The electricity generation firm will also change its name by October to position itself outside the EBX Group, MPX executives said on a conference call.
The magnate, who branded all his companies with an "X" for "the multiplication of wealth," will now attempt to restructure his companies to alleviate debt woes and other problems that have slashed more than $20 billion from his holdings in the group.
When restructuring of EBX ends, Batista will be left with between $1 billion to $2 billion of assets and $1.7 billion of long-term debt, a source with direct knowledge of EBX plans told Reuters. That is only a sliver of his former empire that was once valued at over $60 billion.
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. Brazil's economy is also struggling, its currency weakening and Chinese demand - the driving force behind the Brazilian boom of the last decade - slowing.
"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."
To avoid bankruptcy, Batista will have to sell most of his remaining stakes in EBX companies, the source with knowledge of the company's plans said. The only major asset likely to remain is LLX Logistica SA LLXL3.SA, the owner of the Port of Açu, north of Rio de Janeiro, the source said.
The source asked not to be identified because he is not authorized to speak to the media. EBX declined to comment.
The main source of cash for the restructuring will be Batista's stakes in MPX and iron ore miner MMX Mineração e Metálicos SA (MMXM3.SA). As of May 21, Batista owned 29 percent of MPX and 57 percent of MMX, according to Thomson Reuters data.
MMX on Thursday suspended operations for six months at its high-grade iron ore mine in Corumbá, Brazil, near Bolivia's border. The suspension is an effort to preserve investors' capital, according to a securities filing.
"These assets (MPX and MMX) are cheap compared to their real value," the source said.
Batista, who borrowed against the value of his stock only to see the value of his companies plunge, will sell his holdings in MPX and MMX to pay back $1 billion owed to Brazil's Itau-Unibanco Holding SA (ITUB4.SA) and Banco Bradesco SA (BBDC4.SA), the source said. The proceeds should more than pay the debt, leaving him some excess cash, the source added.
ABU DHABI DEBT
Batista will also cut his debt to Abu Dhabi sovereign-wealth fund Mubadala MUDEV.UL, EBX's biggest creditor, reducing it by more than 25 percent to between $1.6 billion and $1.7 billion, the source said.
Batista incurred the debt when he sold a 5.56 percent stake of preferred shares in his holding company Centennial Investments to Mubadala in March 2012.
The restructuring should take several months, the source said, adding that the biggest challenge will be reorganizing OGX Petróleo e Gás Participações SA (OGXP3.SA), which raised $4 billion in 2008 in what was then Brazil's biggest-ever initial public offering.
OGX, after declaring three of its oil fields non-commercial on Monday, must be reduced to fraction of its size, the source said. Until earlier this year it was Brazil's No. 2 oil company by market value.
The new OGX is unlikely to be able to support payments on $3.63 billion of bonds, the source said. OGX debt due in 2018 and 2022 is already trading at less than 20 percent of face value, a sign that investors expect a default.
Shipbuilder OSX will have to sell its oil-production vessels to pay for the abandonment of its half-finished shipyard at LLX's Port of Açu. The remainder of OSX will belong to EBX, the source said.
MPX CONTROLLED BY E.ON
MPX stock, which had fallen 42 percent this year, jumped as much as 13 percent before closing up 10 percent in Sao Paulo on Thursday. OGX, rose 21 percent, MMX rose 8.5 percent, and LLX rose 5 pct. OSX fell 8.7 percent.
Batista's departure from MPX came after the operator of coal and natural-gas fired power plants canceled a 1.2-billion-real ($528 million) sale of stock to controlling and minority shareholders early on Thursday.
The offer became untenable as market conditions deteriorated and Grupo BTG Pactual SA (BBTG11.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 private placement in which Batista, partner E.ON SE (EONGn.DE), a German utility, and BTG Pactual will be allowed to participate, the filing added.
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 new plan.
Despite Batista's 29 percent stake, and a shareholder agreement giving him a say in MPX operations, the company is now fully controlled by E.ON, the source said. Batista is unlikely to buy shares in the private placement.
"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," said Ricardo Correa, energy company analyst with Ativa Corretora, a Rio de Janeiro brokerage.
BTG Pactual is expected to have an 11 percent stake in MPX after the private placement. Media representatives for BTG declined to comment.
MPX said proceeds from the sale will be used to strengthen the company's balance sheet and prepare it for growth. It wants to participate in upcoming auctions for rights to sell thermal and wind power to the national grid through year-end, MPX Chief Executive Eduardo Karrer said on Thursday's conference call.
($1 = 2.271 Brazilian reais)