* MPX halts share sale as market conditions deteriorate
* Shares will be sold in $380 mln private placement instead
* Batista's troubles mirror change of fortunes for Brazil
* Cash to be used to help MPX become 'independent entity'
By Guillermo Parra-Bernal and Jeb Blount
SAO PAULO/RIO DE JANEIRO, July 4 Brazilian
billionaire Eike Batista's EBX Group, a once high-flying
industrial conglomerate, began breaking up on Thursday, the
latest victim of a decade-long commodities boom that has come to
a screeching halt.
Batista, the founder and vital force behind the oil,
energy, port, shipbuilding and mining group who branded all his
companies with an "X" for "the multiplication of wealth,"
stepped down as chairman of MPX Energia SA, the
embattled EBX Group's most promising company.
The electricity generation company will also change its name
by October to position itself outside the EBX Group, MPX
executives said on a conference call.
The move crosses Batista out of MPX as the value of his
wider empire, once valued at about $60 billion, crumbles. Once
Brazil's richest man, Batista's personal stake in EBX has shrunk
by more than $20 billion in the last year, as promises of oil
wells, ports, power plants and ships failed to materialize.
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. With Brazil's economy
struggling, its currency weakening and Chinese demand - the
driving force behind the Brazilian boom of the last decade -
slowing, investors have little appetite for new investment.
"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."
Batista's departure came after MPX canceled a
1.2-billion-real ($528 million) sale of stock to controlling and
minority shareholders. The offer became untenable as market
conditions deteriorated, the company said in a securities
filing. Grupo BTG Pactual 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 so-called private placement in which Batista,
partner E.ON SE, a German utility, and BTG Pactual
will be allowed to participate, the filing added.
"This is very good for MPX," said Ricardo Correa, energy
company analyst with Ativa Corretora, a Rio de Janeiro
brokerage. "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."
Others are concerned, however, that the cancellation of the
public stock offering in favor of a private placement shows
reduced willingness by BTG Pactual, which had planned to
guarantee the placement of the offer, to back EBX.
"The justification for cancelling the 1.2 billion real
public equity offering with the 10 reais a share 'guarantee' by
both BTG and E.ON was 'market conditions,' but it seems like BTG
decided to pull its firm offer," said Lilyanna Yang, an energy
analyst with UBS Securities in Sao Paulo.
BTG Pactual, which declined to comment on the deal, in March
tossed Batista and EBX a lifeline of loans and investment
banking advice that temporary halted share declines and helped
move EBX closer to a restructuring.
While considering the changed share offer negative, Yang
said she welcomed the MPX rebranding and Batista's departure
from the board as "positive."
MPX stock, which had fallen 42 percent this year, jumped as
much as 13 percent before trimming gains to 9 percent in late
afternoon trading Thursday in Sao Paulo.
OGX Petróleo e Gás Participações SA, EBX's
flagship oil company, rose as much as 26 percent before trimming
gains to 7.7 percent, iron ore miner MMX Mineração e Metálicos
SA rose 4.7 percent, and port and industrial real
estate company LLX Logistica SA rose 2.5 pct.
Shipbuilder OSX Brazil SA fell 3.5 percent.
For Adriano Pires, founder of the Brazil Infrastructure
Institute, a Rio de Janeiro energy think tank, Batista's
departure from MPX and the gains in many EBX shares on Thursday
show investors think breaking EBX apart may be the best way to
protect their investments.
"They have to do something and do something fast to isolate
the different parts of the group from the backlash against
Batista so that Batista and EBX can have the space to stop the
rot and restructure the group," Pires said.
E.ON TAKES CHARGE
Under the now-scrapped stock-sale plan, shares were to be
sold at 10 reais each, as part of E.ON's $1 billion purchase in
March of a stake in MPX. Under the new plan, 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 private placement.
While Batista leaves MPX's board, he still owns 29 percent
of MPX and shares control with E.ON through a shareholder
agreement, MPX said on the call, adding that there is no
guarantee he will buy new stock in the offer.
Batista's stake will shrink to 24 percent if he fails to buy
any MPX stock, MPX said. EBX officials did not immediately
respond to telephone and e-mail requests for comment.
"We see a wide range of opportunities as a result of this
capitalization," MPX Chief Executive Eduardo Karrer said on
Thursday's conference call. "This is part of the evolution
process of MPX as an independent entity."
IN NEED OF CASH
Proceeds from the sale will be used to "strengthen the
company's balance sheet and prepare it for growth." MPX wants to
participate in upcoming auctions for rights to sell thermal and
wind power to the national grid through year-end, Karrer said.
MPX needs fresh capital to finance about 600 million reais
of generation plant investment that will transform it from a
start-up to a fully operating power company.
The MPX private stock sale should be concluded within the
next 40 days, company executives said.
The MPX move also follows similar dramatic developments at
other EBX companies.
On Monday OGX decided to withdraw three oil fields from its
plans, reversing a decision to declare the areas commercially
viable and said its only producing offshore field will likely
stop pumping oil next year.
That prompted the Espirito Santo Investment Bank in Sao
Paulo to drop coverage of OGX on Thursday.
"When we ran the numbers, and considered all the changing
information we just couldn't figure out how OGX can be a going
concern in the future," said Oswaldo Telles, Espirito Santo's
energy company analyst in Sao Paulo.
EBX has also put investors on notice that Batista is looking
for buyers for all or part of his stakes in LLX, owner of the
Port of Açu north of Rio de Janeiro, and MMX, which owns iron
ore mines and an iron ore port west of Rio.