Dubai/Rio de Janeiro (Reuters) - Abu Dhabi state investment fund Mubadala MUDEV.UL said on Monday it will buy a $2 billion stake in Brazil’s EBX Group, providing fresh capital to the Brazilian conglomerate as it boosts spending on oil, ports, shipyards, mines and electricity.
Mubadala, which has stakes in General Electric (GE.N) and private equity firm Carlyle CYL.UL, said the investment will give it a 5.63 percent preferred equity interest in Centennial Asset Brazilian Equity Fund, the personal investment company of Brazilian billionaire Eike Batista, who is behind the EBX Group.
The investment comes as EBX seeks to raise an additional $1 billion for its shipbuilding and ship-leasing company OSX Brasil (OSXB3.SA) and billions more in debt and equity capital to expand oil and gas output, complete port facilities, build thermal power plants, and dig iron ore and coal mines.
“For EBX this is a kind of farm-out with a strategic investor,” Batista told Reuters in a telephone interview. “They (Mubadala) have spent a year in our offices doing due diligence,” he said, adding that “their confidence provides more proof of our investment potential.”
“They do know a bit about oil,” he said of Mubadala, based in the oil-rich United Arab Emirates. For Batista, Mubadala is the latest in a string of international partners, including Germany’s E.ON (EONGn.DE), Portugal’s EDP (EDP.LS) and General Electric (GE.N) that show confidence and “branding” for his projects, most of which are still in start-up stages.
E.ON signed a $34 billion agreement with EBX’s MPX in January.
The investment in EBX is the biggest ever in Latin America by the $46 billion Mubadala fund. The fund is looking to Latin America and other emerging markets for faster growth than more developed markets in North America and Europe.
“This ... transaction marks our first significant direct investment into one of the fastest growing markets and is an important step in Mubadala’s development of strategic opportunities in Brazil and Latin America,” Khaldoon al-Mubarak, Mubadala’s chief executive and managing director, said in a statement.
The EBX investment follows a report this week that Mubadala is in talks to take a stake in a Guinean bauxite joint venture.
Shares of Batista-controlled MMX Mineracao (MMXM3.SA), EBX's iron ore unit, rose 5.03 percent in Sao Paulo, while LLX Logistica LLXL3.SA, EBX's port and transportation company, rose 0.81 percent. OSX rose 0.94 percent, while electricity, coal and natural gas unit MPX MPXE3.SA rose 1.35 percent. Brazil's benchmark Bovespa index of the Sao Paulo stock exchange .BVSP rose 1.32 percent.
OGX OGXP3.SA, the EBX group’s oil and gas unit, fell 2.4 percent. Brazil’s No. 2 oil company by market value, OGX plans to produce 1.4 million barrels of oil and natural gas equivalent by 2020.
That is about half the current output of the United Arab Emirates, of which Abu Dhabi is a part.
Through Centennial, the investment gives Mubadala an indirect stake MMX, LLX, MPX, OSX and OGX as well as in sports marketing, gold mining, healthcare, beauty products and entertainment companies.
While most EBX companies are in the start-up phase, the group is expected to generate $15 billion in annual operational earnings by the end of 2015, Batista, Brazil’s richest man, said in August.
The deal will also give Mubadala, which has assets worth about $46 billion, “participation in both EBX and Mr. Batista’s pipeline of future investment opportunities, such as technology companies, cement, fertilizers, entertainment and others,” the company said.
The fertilizer investments are planned for Brazil’s northeastern state of Maranhão, where MPX and OGX have large natural gas resources. Mubadala and EBX hope to produce crop nutrients for Brazil’s growing agricultural frontier in the country’s northeast and Cerrado region using that gas, Batista said.
“The next 30 million tonnes of Brazilian grains production is going to come from this region and we are close to it with cheap gas,” Batista said. “Mubadala is very interested in food security and growth crops to supply the Emirates with food.”
The fertilizer investments are going to be a private EBX venture through Centennial and not part of one of EBX’s traded companies, Batista said.
He also hopes the investment will help him speed up construction at OSX’s shipyard on the grounds of LLX’s Port of Açu, north of Rio de Janeiro.
Troubles at Brazil’s largest shipyard, Estaleiro Atlantica Sul near Recife, could result in additional business for OSX as state-led oil company Petrobras (PETR4.SA) seeks to speed its own offshore oil and gas investments.
Samsung, the Korean partner in Atlantico Sul, recently quit after disagreements with its Brazilian partners and low efficiency.
“Their loss could be our gain,” Batista said. “Petrobras is looking carefully at our project as an alternative to Atlantico Sul.”
While EBX is based in Brazil, the world’s sixth-largest economy, Batista and his EBX companies also have mining and port assets in Chile and Colombia, which could help open those markets to further Mubadala investment in Latin America.
Mubadala is seeking ways to use its oil revenue to develop and sustain Abu Dhabi and its social services in view of diminishing oil reserves.
Writing by Amran Abocar; Additional reporting by Jeb Blount in Rio de Janeiro; Editing by Reed Stevenson, Marguerita Choy, Gunna Dickson, Gary Hill