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UPDATE 2-OGX misses debt payment in new setback for Batista
October 1, 2013 / 1:52 PM / 4 years ago

UPDATE 2-OGX misses debt payment in new setback for Batista

* OGX misses $45 million interest payment

* Pimco, BlackRock among bondholders that face losses

* OGX says it is revising its capital structure (Adds information on bond, asset sales, price performance, comment, background)

By Guillermo Parra-Bernal and Cesar Bianconi

SAO PAULO, Oct 1 (Reuters) - OGX Petróleo e Gas Participações SA missed a $45 million bond interest payment due on Tuesday, putting the debt-laden company closer to what could be the largest-ever Latin American corporate default.

The missed payment is the latest chapter in the unraveling of Batista’s once high-flying conglomerate of energy, logistics and mining companies. It also nudges OGX closer to a bankruptcy protection filing, which analysts and sources with direct knowledge of the situation have said could come later this month.

The company, which Batista founded in 2007 and at its peak was valued at around $30 billion, failed to deposit the money for the interest payment in bondholder accounts and plans not to do so during a 30-day grace period it has to remain current on its debt, according to a securities filing.

Pacific Investment Management Co, the world’s largest bond fund known, and BlackRock Inc, the world’s biggest money manager, are among bondholders that stand to lose millions if OGX defaults. Investors also worry that a lengthy legal battle is on the horizon in Brazil, where recent debt restructuring and bankruptcy proceedings have turned out badly for them.

“Those are all concerns that may keep investors away from Brazil and perhaps prevent OGX from fixing its own problems,” said David Epstein, a managing director with CRT Capital Group LLC in Greenwich, Connecticut.


Batista, OGX and creditors are currently in talks to stave off the collapse of the company, an event that could also bring down Batista-controlled shipbuilder OSX Brasil SA. Analysts have said that OGX and creditors need to compromise on an urgent capital injection to prevent bondholders from losing everything.

“Negotiations must ensure that neither side ends up with nothing,” Epstein said.

The interest payment was on $1.1 billion in bonds due in 2022, the worst-performing debt among emerging market companies, according to Thomson Reuters data. OGX faces another coupon payment in December of approximately $100 million on debt due in 2018.

“The company is in a process of simultaneously revising its capital structure and its business plan,” OGX said in the regulatory filing. “In light of this fact, the company decided not to pay” the coupon on the bonds.

Prices on the 8.5 percent bond were around 15.5 cents on the dollar, near an all-time low of 15 cents, according to Thomson Reuters data. Shares of OGX, which are down 95 percent over the past year, reversed early losses on Tuesday and were up 14 percent at 0.24 reais in São Paulo.


Batista, who just a year ago was Brazil’s richest man and the world’s seventh wealthiest with a fortune close to $35 billion, is dismantling his Grupo EBX conglomerate because of a dearth of cash, surging debt and a plunge in investor confidence.

His handling of negotiations with OGX creditors has been rocky. Batista forced the ouster of his chief financial officer, Roberto Monteiro, on Sept. 20, despite the opposition of Chief Executive Luiz Carneiro. Monteiro, who had led negotiations with creditors, also worked with Brazilian investment advisory firm Angra Partners, Lazard Ltd. and Blackstone Group LP in the talks.

A group of bondholders, preparing for contentious negotiations, hired financial advisory firm Rothschild to advise them on a potential debt restructuring. Combined, that group - which is known in markets as the creditors’ committee - owns more than half of OGX’s $3.6 billion in outstanding bonds.

OGX wants to persuade bond and shareholders to agree to fund the company until production begins at the Tubarão Martelo offshore field. Sources recently told Reuters that the company is seeking to divest assets, exit exploration licenses and reduce capital spending to focus on the most profitable part of its portfolio.

OGX, which exercised an option that obliges Batista to inject $1 billion in new capital into the company, is trying to get Malaysian state oil company Petroliam Nasional Bhd to begin payments on its $850 million purchase of a 40 percent stake in an OGX field before the Brazilian company’s debt restructuring is finalized.

Still, given its track record, OGX might struggle to raise cash through asset sales.

EIG Global Energy Partners, which bought a $560 million stake in LLX Logística SA from Batista, passed on purchasing any OGX assets, according to a source familiar with the investment firm’s thinking.

EIG passed on OGX because of the company’s over indebtedness, underperformance and lack of production as their drilling wells are frozen, the source said. Other oil companies are now circling OGX to see if any pieces are salvageable. “I think it ends badly” for investors, the source said.

Brazil’s industry, trade and commerce minister, Fernando Pimentel, speaking of Batista to reporters in Brasilia, said, “We believe the entrepreneur will surpass the difficulties that he is facing at the moment.” (Reporting by Guillermo Parra-Bernal and Cesar Bianconi; Additional reporting by Jennifer Ablan, Asher Levine and Maria Carolina Marcello; Editing by Todd Benson, Jeffrey Benkoe and Leslie Adler)

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