By Jeb Blount and Walter Brandimarte
RIO DE JANEIRO Dec 26 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 gets all its revenue from leasing
oil-production vessels to Oleo e Gas.
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
contribute between $200 million and $215 million of loans known
as in debtor in possession finance in exchange for 65 percent of
the stock in a restructured Oleo and Gas.
If approved by a Jan. 24 deadline, the accords will seal the
end of Batista's once-giant EBX industrial conglomerate even as
the companies are allowed to continue operating.
The accords leave Batista with controlling stakes in only
three of the six publicly traded EBX companies.
Of the remaining three, he has had to sell off key assets of
iron ore miner MMX Mineração e Metálicos SA and coal miner CCX
Carvão da Colombia SA. A final OSX agreement over
bonds sold to finance an oil production ship is expected to see
Batista's stake in the shipbuilder sharply reduced.
Both Oleo e Gas and OSX shares rallied on Thursday, as the
agreements could help convince a Brazilian bankruptcy judge that
the companies can emerge from restructuring as viable businesses
and thus should not be liquidated. Oleo e Gas shares rose more
than 21 percent and OSX more than 30 percent.
"The deal is crucial for the continuity of our activities as
our largest client OGX seeks to reestablish its financial
position, allowing it to fulfill its obligations with OSX," the
shipbuilder said in a statement late on Wednesday.
It 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 from creditors owed 11.2 billion
reais ($4.74 billion), the largest bankruptcy in Latin America
and the biggest corporate default in emerging markets this year.
The restructuring process will 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.
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'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.
VESSEL AGREEMENT REACHED
The OSX accord with Oleo e Gas allows for the termination of
several contracts to lease oil production vessels to Oleo e Gas,
which filed for court protection on Oct. 30 when it was still
Other EBX Group companies also changed their names after
Batista sold or gave up control. Batista had baptized all his
companies with an "X" to symbolize the multiplication of value.
The $1.5 billion 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
OSX, which operates a shipyard north of Rio, filed for
protection from creditors on liabilities of 5.34 billion reais
($2.30 billion) days after OGX's bankruptcy protection filing.
The filing did not include its ship-leasing unit that operates
the vessels involved in the accord.