RIO DE JANEIRO Brazilian tycoon Eike Batista's troubled shipbuilder OSX Brasil SA and oil company Oleo e Gas Participações SA have taken another step toward emerging from Latin America's largest-ever bankruptcy with a deal to swap Oleo e Gas debt for stock.
Under the agreement announced late on Wednesday, OSX will convert $1.5 billion owed it by Oleo e Gas into a 7 percent stake in the reformulated oil company, formerly known as OGX Petróleo e Gas Participações SA.
OSX (OSXB3.SA) gets all its revenue from leasing oil-production vessels to Oleo e Gas (OGXP3.SA), which was the flagship company of Batista's EBX Group industrial conglomerate.
The deal fleshes out a wider debt-for-stock accord between Batista's Oleo e Gas and holders of $3.8 billion of bonds announced on Tuesday. Under that agreement, bondholders will lend between $200 million and $215 million of new capital known as debtor in possession financing to keep the company going. In exchange for the loans, bondholders will get 65 percent of the stock in a restructured Oleo and Gas.
OSX shares rose 35 percent on Thursday to close at their highest level in more than a month. Oleo e Gas jumped 16 percent to close at a 10-day high.
"This looks very good. The parties are coming to agreement rapidly," Paulo Rabello de Castro, chief executive of SR Rating, a independent Brazilian credit rating agency told Reuters.
"While it won't get investors money back, the parties appear to want to settle," Rabello, who has advised creditors in some of Brazil's largest bankruptcy cases said.
"The only thing worse than losing money is a long, drawn out fight over the scraps," he said.
OGX's bankruptcy filing on October 30 and was the largest ever in Latin America and that led to OSX filing for bankruptcy in November.
If approved by a January 24 deadline, the accords will likely seal the end of Batista's once-giant EBX industrial conglomerate even as the companies are allowed to continue operating. The accords will leave Batista with controlling stakes in only three of the six publicly traded EBX companies.
They will also free Batista from fulfilling a pledge to put as much as $1 billion into Oleo e Gas to keep it operating until new fields can be brought on line.
Before rebranding itself as Oleo e Gas earlier this month, OGX sought court protection on October 30 from creditors owed 11.2 billion reais ($4.75 billion), the biggest corporate default in emerging markets this year.
The restructuring process is expected to strip Batista of control of his flagship oil company and leave existing minority shareholders with about 10 percent of Oleo e Gas stock.
Non-bondholder creditors will have a total of 25 percent of a new Oleo e Gas after the restructuring according to securities filings.
Rabello de Castro cautioned that the companies' statements on this week's accords do not make it clear if Batista is really giving up a day-to-day role in OSX or Oleo e Gas.
"If he's still the captain he must go down with his ship, if he's giving up control, he must be first off the boat," Rabello de Castro said.
LAST CHANCE TO RECOUP MONEY?
Once worth more than $50 billion, EBX and its oil, energy, shipbuilding, mining and port-operation units saw their value collapse in the last 18 months in one of the most spectacular corporate reversals in history. Batista's advisers have sold the deals to creditors as the last chance to recover anything, even pennies on the dollar, from their investments.
It's still unclear how much bondholders will recover on their investments in OGX and OSX. OGX bonds were worth about 8.75 cents on the dollar on Thursday, according to Thomson Reuters prices
Operations in the Tubarão Martelo field, which began in early December, are expected to generate an operating profit, or generate cash from operations, in April and generate cash in every month to the end of the year after that except May, OGX said in a statement on Thursday.
Those cash flows will be the basis of any potential profit that OGX will be able to provide its new shareholders after debt is converted into shares and the source of future revenue at OSX.
OGX's fate was sealed in mid-2012 after the company failed to produce more than about 10,000 barrels a day from its first field, which it expects to abandon next year. OGX once said it would produce 1.4 million barrels of oil a day, more than two-thirds of Brazil's current output, by the end of 2018.
The OSX accord with Oleo e Gas terminates contracts to lease oil production vessels to Oleo e Gas when it was still called OGX.
The name change to Oleo e Gas, while symbolic, underlines Batista's departure from the companies that made him, during the glory years of a decade-long Brazilian commodities boom, Brazil's richest man.
Other EBX Group companies also changed their names after Batista sold or gave up control. LLX Logística SA, a port operator, is now Prumo Logística SA and controlled by Washington-based EIG. MPX Energia SA is now Eneva SA (ENEV3.SA), led by German utility E.ON (EONGn.DE).
Batista had baptized his companies with an "X" to symbolize the multiplication of value. In the last year most of them lost about 90 percent of their value or more.
The $1.5 billion OSX will convert into Oleo e Gas stock, is divided into several parts: $414 million for the cancelling of the contract to lease the OSX-1 floating, production, storage and offloading ship (FPSO), $55.3 million for the end of a contract for the OSX-2 FPSO, and $528.6 million for the cancelling of a contract to lease a well-head platform known as WHP-2.
OSX is still in talks with holders of bonds sold to finance the OSX-3 FPSO, which began producing oil for Oleo e Gas in the Tubarão Martelo offshore field east of Rio de Janeiro in early December.
OSX, which operates a shipyard north of Rio, filed for protection from creditors on liabilities of 5.34 billion reais days after OGX's bankruptcy protection filing. The filing did not include its ship-leasing unit that operates the vessels involved in the accord.