Eike Batista, ranked as the world’s eighth-richest person last year, ceased to be a billionaire after Mubadala Development Co. converted an investment in his companies into debt, further eroding the value of his assets.
Batista’s EBX Group Co. owes $1.5 billion to Mubadala after the Abu Dhabi sovereign-wealth fund restructured a $2 billion investment, said three people with knowledge of the deal. The fund no longer has equity in EBX, which paid back $500 million after renegotiating earlier this month, said two of the people, asking not to be named because terms are private.
Batista had already amassed at least $2 billion in personal liabilities, meaning the 56-year-old entrepreneur now has a net worth of about $200 million, according to the Bloomberg Billionaires Index. After peaking at $34.5 billion when the transaction with Mubadala was announced in March last year, Batista’s fortune has evaporated as missed production and reserve targets at his flagship oil company OGX Petroleo & Gas Participacoes SA (OGXP3) spurred selling of his group’s securities.
“His loss of credibility is explained by not delivering on the results promised when he listed his companies,” Elad Revi, an investment analyst at Spinelli SA, said by telephone today from Sao Paulo. “There was a chain reaction: he lost credibility in one, then he lost it in all of them.”
As recently as last year, Batista had vowed to become the world’s richest man, and said in an interview with Bloomberg News that he exemplified a new “Brazilian dream” of entrepreneurial success. His decline comes as Brazil’s economic growth falters, with gross domestic product expected to expand by less than 3 percent for a third straight year. With inflation running faster than 6 percent, Brazil’s benchmark Ibovespa index is the world’s second-worst performing major stock gauge in 2013, declining 27 percent in dollar terms.
Batista’s OGX is down 87 percent this year, leading declines on the Ibovespa. By converting its investment to debt, Mubadala will be shielded from equity losses. General Electric Co. (GE), which bought a $300 million stake in EBX last year, said earlier this month that it had written down its investment.
OGX rose 5.4 percent to 59 centavos at 10:21 a.m. in Sao Paulo today. The company’s $2.56 billion of bonds due in 2018 are trading at 22 cents on the dollar, tumbling from 98.1 cents in January in the world’s worst corporate bond performance.
As a creditor, Mubadala will have priority over shareholders in the reshaping of the group as the former billionaire seeks to sell assets, trim projects and reduce debt. Batista’s five publicly traded companies had combined total debt of 19 billion reais at the end of the first quarter, data compiled by Bloomberg show.
In an opinion piece for Valor Economico newspaper last week, Batista vowed to pay back those who had lent him money.
“I will honor all of my obligations,” Batista wrote. “I won’t leave a single penny unpaid for each one of my debts.”
EBX, based in Rio de Janeiro, said July 10 that it restructured an agreement with Mubadala after Batista’s five publicly traded companies produced a combined annual loss of 2.9 billion reais ($1.3 billion) as of the first quarter, fueling the stock selloff. The parties also agreed to protect the fund’s remaining investment, EBX said, without elaborating.
A Mubadala official, who asked not to be identified citing company policy, declined to comment on terms of the restructured arrangement. EBX’s press office declined to comment on the Mubadala agreement and didn’t respond to an e-mail seeking comment during a local holiday about Batista’s drop from the billionaire ranks.
Batista’s downfall is the biggest erosion of wealth since the Bloomberg Billionaires Index began in March last year.
The Brazilian magnate pledged his personal wealth to back 2.3 billion reais in loans from Brazil’s state development bank last year, according to a statement earlier this month from the lender, known as BNDES. He also has $1 billion in debt from his 2011 acquisition of Ventana Gold Corp., which he renamed AUX, a person with knowledge of the matter told Bloomberg in December.
Together with his debt with Mubadala, Batista’s liabilities of $3.5 billion are just $200 million short of the total value of his assets.
Batista’s investments in the six publicly traded companies he founded are worth a combined $2.4 billion, according to data compiled by Bloomberg. Based on an analysis of asset sales, taxes and reinvestments, he probably has at least $950 million in cash, real estate and investable assets, including smaller startup ventures such as event promotion venture IMX. His gold venture is valued at about $390 million based on the average price-to-ounce multiple of listed peers.
Mubadala said in an e-mailed statement yesterday that it is among a “number of parties” that see significant potential value in some assets held by EBX. The fund remains in talks with EBX as Batista’s holding company continues to restructure its business, it said in the e-mail, without elaborating.
The Abu Dhabi investment company is considering acquiring assets or a stake in assets from Batista by swapping some of the debt, said one of the people with knowledge of the sale process.
Mubadala took a “preferred equity interest” in Batista’s Centennial Asset Brazilian Equity Fund LLC and other offshore vehicles, according to a joint statement in March 2012, leading Batista’s net worth to its peak of $34.5 billion. The deal gave the government-owned fund 5.63 percent of each of Batista’s stakes in his publicly traded, closely held companies and any new ventures as well as “certain rights and protections,” the companies said at the time, without giving more detail.
Two banks with knowledge of the deal considered it a hybrid between equity and debt, two people told Bloomberg News in December. One of the banks, which lends to EBX, treats it as a loan when gauging the credit quality of Batista’s group, said one of the two people at the time.
Mubadala extended a 7.35 billion-dirham ($2 billion) loan to an undisclosed third party secured by “listed securities and guarantees,” according to its first-half financial report last year. The deal carried a “minimum assured return,” matures in 2017 and could be extended by Mubadala for an additional two years, it said at the time.
“Given his complete lack of credibility with the market now, it’s difficult to believe in any comeback” for Batista, said Spinelli’s Revi. “But the possibility always exists. It’s small but it exists.”