I have been following charismatic brazilian tycoon Eike Batista for a few years now. In this interview with Charlie Rose in early 2012 he was proclaiming to be the world’s richest man soon:
Things look a little bit different now as his commodities empire EBX is on the verge of collapse. Business Insider put together a nice little mini biography of his life so far:
Creditors are calling, and this week Batista did not pay a $47 million interest payment on his oil and gas company’s (OGX) bonds. If he doesn’t pay by Oct. 30, OGX will be the biggest corporate default in Latin American history. What Batista is doing is making yet another massive bet on himself. He wants bondholders to restructure his over $3 billion of debt, give him more cash, and allow him to continue developing his empire. He still believes he can make EBX great, but the market is losing patience.
One of seven children, Eike was born in 1956 in Governador Valadares, Minas Gerais, Brazil, to a Brazilian father and German mother, he spent his childhood in the country of his birth, but moved to Germany when he was a teenager. In 1974, he began to study metallurgical engineering at the University of Aachen in Germany. His family returned to Brazil when he was 18, and he started selling insurance to make ends meet. All his friends, on the other hand, were rich. From the Australian Financial Review: “So I got highly motivated to make some extra money and I sold insurance policies from door to door. It’s a great learning experience because some doors open and some don’t. I had a lot of teas with old ladies.” But by 1979, he’d dropped out of college before he could finish his degree in metallurgical engineering and returned to Brazil. After school, he tried to export granite, marble and diamonds. “I discovered it was controlled by the Italian Mafia, so I quit that and began organizing pick and shovel miners to produce diamonds.” The garimpeiros (shovel miners) would come to his Rio office with diamonds in little bags. Batista introduced them to Jewish dealers from Portugal and Antwerp and collected commissions on each sale.
But eventually he moved on to trading gold, where he made his first millions. In the early 1980s Batista returned to Brazil and started a gold trading firm, Autram Aurem, raising seed money from connections in Rio and quickly establishing a far-flung network of 60 buyers of raw gold in the Amazon. Since the whole gold trading things was working out so well, Batista decided to found his own gold mining company, TVX Gold, in 1980. The ‘X’ in the name is supposed to signify ‘multiplication,’ as in multiplication of wealth.
From the Age: “Eike would go into the jungle and show these village chiefs a 10-day-old newspaper and say, ‘Look, here’s the price of gold,'” McLucas, told The Age. “Meanwhile, the price had gone up, and would go up even more by the time he got back to Rio. He’d pay the chiefs in local currency, which was dropping, and sell the gold in hard currency. You couldn’t lose.”
Between 2004 and 2012 he would add six public companies under the EBX umbrella:
- OGX (oil), MPX (energy)
- LLX (logistics)
- MMX (mining)
- OSX (offshore industry)
- CCX (coal mining)
After plans for a gold mine in Greece went bust because of political opposition, once high-flier TVX took a decided turn for the worse. And then the price of gold started to fall, reaching a paltry $300 an ounce. Batista resigned in 2001, after the cash-strapped producer was forced to put itself up for sale. In 2011, Batista bought out Ventana Gold Corp., a company he’d had his eye on for a while by then. He first snapped up a 9.5% stake in Ventana in July 2009 through EBX, and by 2010, he controlled 20% of the company’s stock. They finally came to a full sale agreement in 2011, when Batista sweetened the deal, which valued Ventana at a little more than C$1.5 billion.
In the spring of 2012 he was the 10th richest man in the world. Batista said he wanted to repair Brazil’s reputation: “Brazil lost two generation of Brazilians to the crisis between ’84 and ’97,” he said. “Brazil probably paid $150 billion in extra risk spread [during that time]. The ratings agencies put Brazil in the same level as Nigeria, and today it’s better than Germany.”
In 2012, he got Abu Dhabi’s Mubadala Development Company, a government-owned fund, to invest $2 billion in EBX Group Co., which gave the fund a 5.63% economic stake in the company. He was raising money to develop his oil and mining businesses. Then everything changed in the summer of 2012. Batista started losing $1.6 billion a month, $2 million a day. Now 99% of his fortune is gone. The main contributor to Batista’s downfall was and is OGX, his oil and gas company. His fields simply did not produce as promised. In January 2012 OGX estimated production of 15,000 barrels of oil a day (not that great), then in May 2012, one of its fields dropped to 10,000 a day. Then expectations for some fields fell even further, to 5,000 barrels a day, in June 2012.
In July he wrote a letter to Brazil that seemed to wonder (rather than explain) what went wrong. He maintained, however, that he would carry on:
“More than anyone, I wonder where I went wrong. What should I have done differently? A first question might be linked to the funding model I chose for the companies. Today, if I could go back in time, I would not have resorted to the stock market. I would have a structured private-equity firm that would allow me to create from scratch and develop over at least 10 years each company. And they would all remain private until I was sure that it was time to go public. In the projects that I conceived, time proved a vital stress factor for the reversal of expectations on companies bearing broadly satisfactory results and valuable assets.
What has happened since it became clear that OGX would not be able to deliver the results that once seemed possible to achieve? Have I suddenly become a reckless adventurer who marshals resources for his own benefit and does not care if I will deliver what I had advertised? Today it is hard to remember, but OGX was built by some of the crowned heads by decades of services to reputed companies. I did not invest in the oil industry without surrounding myself of those I and the market understood to be among the most skilled professionals one could find. When winning the fields it got, expectations around OGX were sky high.
I had offers to sell big stakes or even the control of OGX from a valuation of $30 billion. Two years ago, I put more than $1 billion out of my pocket in the company. I lost and have been losing billions of dollars with OGX. Does someone who wishes to mislead the other do so at a cost of billions of dollars? If I wanted, I could have performed a scheduled sale of $100 million every six months over 5 years. I would have pocketed $5 billion and still remain in control of OGX. But I did not. Who lost the most with the collapse in the value of OGX was one shareholder: Eike Batista. No one has lost as much as I did, and it is fitting that it be so.”
On October 1st, Batista failed to pay a $47 million interest payment on OGX bonds. By October 30th, he’ll be in default. If this happens, OGX will become this biggest corporate default in Latin America, according to The WSJ.
Batista wants bondholders, like PIMCO, the largest bond fund in the world, to restructure his debt, and bondholders have retained lawyers and hired Rothschilds to review the deal. Last month, Batista got Mubadala to restructure his debt — why not his bondholders? According to Bloomberg, he’ll also try to negotiate $250 million in cash to continue developing OGX’s fields and hold his empire together.
In my opinion he certainly overdid it with two yachts and three private jets. After all, as Felix Dennis already said:
If it floats, flies or fornicates, rent it.
But don’t count Batista out. He’s a very driven man and I’m sure he’ll be back on top sometime in the future.