The Short Sellers Are Circling Around Brazilian Billionaire Eike Batista's Floundering Empire
The Brazilian billionaire who once said that he would become the richest man in the world is now fighting for his fortune — and he has plenty of people out there wagering that he will fail.
According to Bloomberg, shares on loan for his flagship oil company OGX jumped to 267 million this week. That means 21% of the shares of Batista's company are currently borrowed.
That means investors could be shorting 21% of his company's shares right now.
It's a dire situation to be sure, but Batista, ever full of swagger, has said that those betting against his empire are just spreading rumors and gossip and would eventually be “caught with their pants down."
The numbers tell another story.
Personally, Batista has lost $6 billion in the last year, meandering on and off Bloomberg's list of 100 richest billionaires. Forbes called him 'the biggest loser of the year,' calculating that he lost $2 million an hour in 2012.
Forbes and Bloomberg disagree as to whether his net worth in total has fallen $19.4 billion (Forbes) or a whopping $26 billion (Bloomberg) over the past year.
Worse yet, are the reports that he's facing collateral calls from creditors.
Among Batista’s biggest creditors is Sao Paulo-based Itau Unibanco Holding SA, with about 5.5 billion reais ($2.8 billion) in loans outstanding, said two of the people, who asked not to be identified because the matter is private. Batista borrowed about 4.8 billion reais from Banco Bradesco SA and 1.6 billion reais from Grupo BTG Pactual, not counting a credit line of $1 billion BTG provided earlier this month, the people said.
The BTG deal was spearheaded by Andre Esteves, a legendary Brazilian banker who guided BTG from a $2.5 billion investment bank to a powerhouse worth $15.4 billion. Esteves said he would be taking care of Batista's finances, but even that hasn't calmed investors.
Batista is still getting massacred.
To understand why and how, you have to understand how his empire is structured.
Batista owns 6 companies trading on Brazilian stock exchange Bovespa's Novo Mercado, the section for companies that have achieved the highest standard of corporate governance.
All 6 companies are controlled under umbrella firm EBX (all Batista's companies end with X to symbolize multiplication). They are:
- OGX (oil and gas),
- MPX (energy),
- LLX (logistics),
- MMX (mining),
- OSX (offshore industry),
- and CCX (coal mining).
The company that's really getting pounded is OGX. Its stock has plunged 85% over the year, and bondholders have started feeling skittish as well (OGX bonds due 2018 fell to a record low last week).
This all because last month OGX revealed that it missed production targets by 25%, and lost $142 million in Q4. Now the company has decided to cut the size of its only producing oil field, according to Bloomberg. It is, however, still planning to make over $1.3 billion of investments this year and has about $1.6 billion cash on hand.
That said, according to the FT, investing in the company may not be enough. The problem is that Batista's talk isn't living up to EBX's walk.
“He hasn’t delivered on his promises and the market has got tired of it,” says Pedro Galdi at SLW brokerage in São Paulo...
As a conglomerate of mainly start-up companies, already weakened by a global funding squeeze, EBX relies on the good will of the market, says Oswaldo Telles at the BES Espírito Santo bank in São Paulo.
“It is essentially a group of ideas, not of businesses – there is no business that is ready and generating cash,” he says.
That's why, after the collateral call news came out, Batista announced that he would sell a part of his stake in MMX to raise some cash. He personally has a 54% stake in the company.
MMX has seen better days too, though. Two CEOs have left the company in less than 2 years, and it was recently handed a $1.86 billion fine for unpaid taxes, according to the FT.
The billionaire does have some bright spots on the horizon though. He's doing a maritime equipment deal with BP, and more importantly, LLX, his logistics and infrastructure company has had a banner year. The stock rallied 19% in the last month and the company just scored a contract to build off-shore drilling structures with Brazilian state oil company Petrobras.
Of course, Petrobras has its own problems.
So the pressure is on for Batista to turn his entire empire around, and fast — not just because he said he would be the richest man on the planet, and not just because (as he's always said) he sees himself as a soldier responsible for bringing Brazil's success to the world.
It's because Batista will automatically lose a chunk of EBX if he doesn't perform. No one knows yet how much.
Last year, he sold over 5% of EBX preferred stock (worth around $2 billion) to Abu Dhabi's sovereign wealth fund, Mubadala Development Company.
As part of their "strategic partnership" Batista agreed to return over 5% annually, or forfeit an unknown amount of his company in 2019, according to Bloomberg.
Perhaps it's time to sell one of his three jets, or maybe one of his two yachts. These are desperate times.