From World's 7th Richest Man To Margin Calls In 15 Months
My how the 'over-levered and cross-collateralized debt-is-wealth' mighty have fallen. Eike Batista, Brazilian entrepreneur, was the 7th richest man in the world in 2011 but as Forbes recently noted, he is the 'biggest loser' on their list (losing an incredible $2mm per hour), ending 2012 in 100th place after his biggest holding - OGX Petroleo E Gas - slumped 80% in the last year (and a stunning 43% in 2013 alone) which means his net worth has plunged 20% YTD (according to Bloomberg). While he has the yacht, cars, speedboat, and jets to go with someone who apparently has a net worth of $9.9bn, he now has one more thing to worry about...
- *BILLIONAIRE BATISTA SAID TO FACE COLLATERAL CALLS FROM BANKS
As Bloomberg notes, the billionaire faces demands from creditors to boost collateral as his other company MPX Energia saw its stock fall to record lows (as cross-collateralization leads towards a vicious circle). "Doubts about the group continue," one analyst notes as net debt at Batista's six publicly traded units more than tripled last year, "he really has to something to prove he isn't having a cash problem." On the bright side, we are sure his girlfriend will stay with him.
His largest holding OGX...
Eike Batista, the Brazilian billionaire whose oil-company shares fell to a record low last week, is close to selling a stake in MPX Energia SA (MPXE3) as he faces demands from creditors to boost collateral, people with direct knowledge of the matter said.
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.
Batista, 56, used shares of his publicly traded companies as collateral for loans that helped build his empire of commodities and energy businesses, held as units of his EBX Group Co., the people said. Shares of his oil and gas company, OGX Petroleo e Gas Participacoes SA (OGXP3), plunged 8 percent in the past year, and Batista is trying to reduce collateral requirements by selling assets to pay debt, the people said.
“A big part of investors’ mistrust now comes from the fact that Eike may be forced to cover margin calls on his debts,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said in a telephone interview from Rio de Janeiro. “Doubts about the group continue.”
Net debt at Batista’s six publicly traded units more than tripled last year to a combined 15.8 billion reais, according to data compiled by Bloomberg based on the latest available figures. The companies posted a combined net loss of 1.68 billion reais in the first nine months of last year amid missed project targets and rising costs.
Batista, whose personal wealth declined about $25 billion in the past year as the share prices tumbled, can use the short- term liquidity line he received from BTG for any of his companies and for any purpose, including paying debt as a way to reduce collateral needs, one of the people said.
Itau, Bradesco and BTG declined to comment on collateral calls, according to bank officials who asked not to be identified in keeping with company policies.
Batista also would sell MPX shares to the public in the divestiture, which may raise more than $2 billion, the person said. An EON official declined to comment on the talks.
Batista sold part of the holding company EBX last year to Abu Dhabi’s Mubadala Development Co. and General Electric Co., slowing an expansion into mining and energy in Brazil, Colombia and Chile to focus on raising cash to boost output at existing projects.
Batista also aimed to sell all of his gold business, AUX, after disclosing plans last year to divest a 49 percent stake, two people familiar with the matter said last month. Vancouver- based Goldcorp Inc., the world’s second-biggest miner of the precious metal by market value, entered the talks for AUX after an agreement to negotiate exclusively with Qatar’s government expired in October, the people said. The pace of negotiations for AUX has slowed and a deal may not happen, one of the people said.
Batista also sought to sell shipbuilder OSX Brasil SA (OSXB3) to Sete Brasil Participacoes SA in exchange for a stake in the oil- rig contractor, according to two people with direct knowledge of the matter. He eventually gave up on the idea, Folha de S. Paulo reported in October, citing an interview with Batista.
OGX share’s price fell 44 percent this year, the second- biggest drop among 125 companies in the FTSE All World Oil & Gas Producers Index (AWOGPU), and investors are betting it will fall more as short-seller positions increase. ...
“He really has to do something to prove he isn’t having any cash problem,” Brito at Teorica said. “Maybe selling an asset, like MPX, or doing a farm-out at OGX; anything that proves that he has assets that he can sell at a good price.”
His Son's Girlfriend
... from another angle...
Could be worse we guess...
Two things spirng to mind... funny how leverage works both ways AND the joys of rehypothecation and cross-collateralization in this case are a perfect example of why when and if the world has a greater-than-5-to-10% correction in asset prices, the panic buttons will be hit hard...