SAO PAULO Nov 2 The loan exposure of Brazil's
two largest private-sector banks to former billionaire Eike
Batista's debt-laden Grupo EBX is falling, UBS Securities said
in a report, signaling that the risk of additional bad loan
provisions or significant writedowns is declining.
Collateral put forth by Batista and EBX, a mining, energy
and logistics conglomerate, is proving enough to reduce the
probability of losses at Itaú Unibanco Holding SA and Banco
Bradesco SA, London-based strategist Philip Finch said in a
A 3.5 billion reais ($1.5 billion) wave of takeover activity
targeting some of Grupo EBX's main companies is also helping to
reduce bank exposure risk to EBX, UBS said.
"We do not expect higher provisions on coming quarters while
guarantees could reduce potential losses," Finch wrote in the
note, which was released late on Friday. Even after Bancpo
Santander Brasil SA's exposure to Grupo EBX rose by
the end of June, "we think earnings risk for these banks is
The banks that financed the rise of Batista, who just 18
months ago was the world's seventh-richest man, led the
struggling group's debt refinancing efforts and were able to
limit potential losses, as opposed to bondholders who could be
left with very little.
Itaú and peers refinanced maturing debt and stretched out
debt repayments for some EBX companies with the condition of
getting more collateral in the form of assets and additional
stock, a source with knowledge of the situation told Reuters in
The note comes a few days after OGX Petróleo e Gás
Participações SA, the oil producer that for years was
Batista's and Grupo EBX's flagship company, filed for creditor
protection in a Brazilian court. The decision fanned concerns
among investors over the financial health of Batista-controlled
companies, the combined or crossed loan exposure of local listed
lenders to companies in Grupo EBX and the risk of additional
Calls to media officials at Rio de Janeiro-based Grupo EBX
for comment were not immediately answered.
According to estimates by Finch and his team, combined loan
exposure by Itaú, Bradesco and Santander Brasil to OGX, Eneva SA
, which was formerly known as MPX Energia SA and now
has E.ON SE as its largest shareholder, LLX Logística
SA, shipbuilder OSX Brasil SA and CCX
Carvão da Colômbia SA, fell to 1.93 billion reais at
the end of June, from 2.27 billion reais in March.
Still, the number may be underestimated due to the
difficulty of knowing how much of that exposure is
collateralized. Investors have for months balked at Grupo EBX's
complex structure, its appetite for debt and, in the case of
banks, the existence of guarantees and undrawn, committed credit
The pressure exerted by state and private-sector banks on
EBX enabled them to virtually eliminate any significant loss on
their exposure to the struggling group. Bradesco is the most
exposed bank to companies in the group, the note said.
Outstanding Itaú loans to companies in Grupo EBX fell 21
percent to 802 million reais on a quarter-on-quarter basis in
the second quarter, Finch estimated. Bradesco's exposure fell 14
percent to 868 million reais while Santander Brasil's increased
4 percent to 254 million reais.
Itaú, Bradesco and Santander Brasil
are the country's largest private-sector banks,
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 reversed course and is
currently selling assets and repaying debt to reduce
requirements on some of that collateral.
At the end of the second quarter, Batista's six publicly
traded companies had a combined net debt of about 25 billion
reais, according to Thomson Reuters data. UBS estimated that
amount at 24.6 billion reais in the same period. That number,
which almost tripled since 2010, rose as the companies posted
losses exceeding 1 billion reais last year.
The total amount of debt in Batista's EBX by bank is not
clear because Brazilian law prevents banks from disclosing their
exposure by individual clients due to secrecy.
Most of the loans and financing are backed by guarantees,
both cash as well as stocks of EBX companies. "We recognize the
recent devaluation of the companies'stock price, but still,
banks could be able to execute the cash guarantees," the note
According to Finch, "Itaú has better guarantees than does
Bradesco." The lenders could use the excess provisions to absorb
an eventual loss and limit the impact of a potential credit
event at any of Grupo EBX companies on net income. Bradesco has
around 4 billion reais in excess bad loan provisions, while Itaú
has 5 billion reais and Santander Brasil about 700 million