SAO PAULO/RIO DE JANEIRO OGX Petróleo e Gas Participações SA (OGXP3.SA) ousted its chief executive as part of a restructuring plan to avert bankruptcy, a source said on Tuesday, the same day shares of the ailing Brazilian oil producer posted their biggest jump ever on hopes that founder Eike Batista might cede control of the company.
The board of Rio de Janeiro-based OGX dismissed Chief Executive Officer Luiz Carneiro and Jose Roberto Faveret, the company's head of legal affairs, said the source, who declined to be identified because of the sensitivity of the issue. A company spokeswoman declined to comment.
Under Carneiro, who took the helm of the company in June 2012, OGX grappled with output target delays, a surge in debt and eroding market confidence that led to a 96 percent slump in the price of its shares. In recent weeks, Carneiro challenged a board decision to fire Roberto Monteiro as chief financial officer, and sought to exercise a put option that would oblige Batista to buy $1 billion in OGX stock to replenish the company's capital.
The decision came as Carneiro was in New York meeting with OGX bondholders, according to local media. Shares of OGX surged 48 percent to 0.34 reais on Tuesday as Brazilian news website InfoMoney said Batista was close to ceding control of OGX to bondholders.
Batista, a flashy former billionaire who has been scrambling to sell off pieces of his Grupo EBX conglomerate of industrial companies to pay debt, currently holds a 51 percent stake in OGX. The OGX spokeswoman declined to comment on the report or about negotiations with creditors.
According to InfoMoney, which cited an unnamed source close to OGX, creditors are studying a proposal that would convert their bonds into stock, giving them a stake in the company. As part of the deal, Batista would relinquish control of the company he founded to great fanfare in 2007.
Some market participants believe that if Batista were to walk away from OGX, it would ease tensions in talks with bondholders and potentially facilitate a resolution that could save the company from bankruptcy.
"The market feels that with Batista out of the picture, OGX would be in a better position to renegotiate its debt," said Anderson Luz, managing partner at brokerage firm Intrader in Sao Paulo. "It's a question of credibility. When it's time to sit down with creditors and negotiate, you want a new controlling shareholder there at the table."
OGX, which currently has $3.6 billion in outstanding bonds, was forced to the negotiating table after missing a $44.5 million interest payment on its debt on October 1. The company has 30 days from the missed payment to reach an agreement with bondholders or be declared in default, which would be the largest ever corporate default in Latin America, according to Thomson Reuters data.
Faced with dwindling cash and a crushing debt load, OGX could also be forced to file for bankruptcy protection in Brazil, giving it more time to restructure. Calls to representatives of the group representing OGX creditors were not immediately answered.
The speculation that Batista might surrender control of OGX comes a day after the company finalized a $996 million deal that handed over control of its iron ore port in Brazil to Dutch energy firm Trafigura Beheer BV TRAFG.UL and Abu Dhabi sovereign wealth fund Mubadala Development Co MUDEV.UL.
Trafigura and Mubadala, Batista's single biggest creditor, will invest $400 million to complete the port and agreed to assume 1.3 billion reais ($596 million) of debt as part of the deal.
Batista, who just a year ago was Brazil's richest man and the seventh wealthiest in the world with a fortune close to $35 billion, is dismantling his Grupo EBX conglomerate of mining, energy and logistics companies because of a dearth of cash, surging debt and a plunge in investor confidence.
A collapse of OGX, once the flagship company of the EBX group, could also bring down Batista-controlled shipbuilder OSX Brasil SA (OSXB3.SA), which is owed payments for the oil tankers that it has built and leased to OGX.
State-run Caixa Economica Federal, Brazil's largest mortgage lender, is close to refinancing a 400 million reais loan to OSX due on Saturday, a source with direct knowledge of the matter told Reuters on Tuesday. Caixa is likely to agree to roll over the loan if OSX wins an extension of a financial guarantee provided by Banco Santander Brasil SA and Banco Votorantim SA, the source added.
O Estado de S. Paulo newspaper, citing unnamed sources, said that state development bank BNDES agreed to refinance a 518 million reais loan to OSX for an additional 30 days.
OSX, Caixa Economica Federal and BNDES did not respond to requests for comment on the loan refinancing efforts.
($1 = 2.18 Brazilian reais)
(Additional reporting by Priscila Jordão; Editing by Todd Benson, Leslie Adler and Phil Berlowitz)