Eike Batista’s assets.The great X-it.Foreign firms are buying most bits of the Brazilian mogul’s fallen empire

2014.2.22

 

 

 

DURING his stratospheric rise Eike Batista became a symbol of Brazil’s economic virility, extolled by politicians and lionised by fellow businessmen. He was the world’s seventh-richest person, with a fortune put at around $30 billion. His interlinked businesses included six listed commodities and logistics companies—each with an X in its name, signifying the multiplication of wealth—plus a handful of private firms such as a property developer and a gold-miner. But OGX, the oil and gas firm at the heart of his empire, proved not to be the gusher he had promised. Investors lost faith in him and his devalued assets, and his empire crumbled.

But not everyone has been put off by the biggest corporate failure in Latin America’s history. This week, as OGX filed its recovery plan with a court in Rio de Janeiro, Cerberus, an American private-equity firm, was reported to be sizing up Mr Batista’s shipbuilder, OSX. It is said to be ready to give a large cash injection to the operation, currently in bankruptcy protection.

In this section

Should the deal materialise,

 

1) Cerberus will join a band of foreigners sifting the rubble of Mr Batista’s empire.

 

2) E.ON, a German utility, picked up a chunk of MPX, his energy firm.

 

3) EIG Global Energy Partners of America now owns LLX, a port operator.

 

4)Trafigura, a Dutch trading house, and 5)Mubadala, an arm of Abu Dhabi’s government, jointly purchased another port.

 

6)Acron, a Swiss fund, snapped up the Hotel Glória in Rio. Even bargain-hunters from wobbly emerging economies are getting in on the action.

 

 7) Corporación América, owned by Eduardo Eurnekian, an Argentine tycoon, has bought Mr Batista’s stake in a Brazilian microchip-maker, SIX Semiconductors.

 

 8) on February 3rd CCX, Mr Batista’s Colombian coal-mining operation, disclosed the terms of a deal in which Yildirim of Turkey will take it off his hands.

 

 

 

Why aren’t Brazilians piling in?

One reason, says Claudio Frischtak of Inter.B, a consulting firm in Rio, is that they have gone “from euphoria to depression”. Many were singed by their dealings with Mr Batista and now want nothing to do with him, or his assets. This includes not just investors in the ill-fated ventures, but shareholders in the banks and other firms which backed them—in other words, just about anyone in Brazil with the necessary wherewithal and expertise. Since the country lacks big “vulture funds”, as firms like Cerberus are labelled, that left few takers.

 

It did not help that cash is hard to come by, notes Antônio Lacerda, an economist at the Catholic University in São Paulo. With Brazil’s economy forecast to grow by just 2% or so this year, investor confidence is low. The stockmarket has fallen 16% in the past year. Brazil, with India, Indonesia, South Africa and Turkey, is one of the “fragile five” emerging economies overexposed to footloose foreign capital. Public finances are strained: Standard & Poor’s, a ratings agency, is mulling a sovereign-debt downgrade. Despite some soothing words at Davos, President Dilma Rousseff has shown little zeal for the vigorous reforms of taxes, the labour market and onerous regulation needed to boost investor confidence.

 

So capital markets are tight. Meanwhile, inflation of nearly 6% a year has led the Central Bank to raise interest rates to 10.5%, making it expensive to borrow from banks to finance acquisitions. Many foreign firms, by contrast, are still awash in cheap money. Brazil’s currency, the real, has fallen by about a third since late 2010, making assets there look cheap to outsiders. No wonder foreigners, unscarred by the Batista empire’s collapse, are prepared to take a punt on its viable-looking bits