Interesting Billionaire goes Bust story

How Brazil’s Richest Man Lost $34.5 Billion

Interesting Billionaire goes Bust story

Image courtesy of [scottchan] / FreeDigitalPhotos.net 

Eike Batista stands at the center of a specially built air-conditioned stage on his 22,000-acre-plus Açu port project, a massive oil and iron-ore shipping complex about 200 miles north of Rio de Janeiro. He’s beaming, flashing victory signs. He has on an orange-and-gray racing jacket of the type he wore as a champion speedboat racer two decades before. It clashes badly with his bright pink tie and gray pinstripe suit, but he doesn’t appear to care—in fact, the loud ensemble only serves to highlight a faux oil-stained handprint across the jacket’s left pocket—a corny hint about why he’s asked everyone here.

It’s a cloudy April afternoon in 2012, but Batista is full of blue skies and endless vistas. To date he’s founded five publicly traded companies and is soon to launch a sixth. His personal wealth is estimated at $34.5 billion; most of his enterprises are managed under the umbrella of a holding company bearing his initials, the EBX Group. At 55, he’s Brazil’s richest man—and the eighth-wealthiest man on earth.

With him onstage is a roster of Brazil’s political and business elite: President Dilma Rousseff, Rio Governor Sérgio Cabral, and Mines and Energy Minister Edison Lobão. The audience of 400 includes foreign corporate luminaries such as Kim Jung Rae, co-chief executive officer of Hyundai Corp. Batista has gathered them to show off Açu, which he predicts will be the largest port in the Americas. He also wants to share some good news. His oil company, OGX Petróleo e Gás, has begun production on what he describes as a “new frontier” of petroleum 37 miles off the Brazilian coast. “This is an historical moment,” says Batista. “It’s the first time an independent Brazilian company has produced offshore oil.”

That Batista, new to the oil business, had brought in wells gushing with crude was the sort of announcement investors had come to expect of him. At that moment, Batista embodied Brazil’s decade-long economic expansion, and for international investors wanting a piece of the new Brazil, he could do no wrong. Many of those investors were American. BlackRock (BLK), the world’s largest money manager, had bought millions of OGX shares. Pimco (ALV:GR), manager of the world’s largest bond fund, owned $576 million in OGX bonds. General Electric (GE) took a 0.8 percent share in EBX valued at $300 million. Brazilians “should be very proud” of what Batista and OGX had achieved, said Rousseff, sporting her own orange OGX jacket onstage at the Açu port. “OGX has a big contribution to make in the offshore oil production of Brazil.” Batista, in an interview a few days later with investment conference host Michael Milken in Beverly Hills, declared Rousseff’s appearance at his port not simply a feather in his cap but also “a major event for Brazil.”

To say Batista overreached would be to seriously undersell what has happened in the 18 months since that self-regarding presstravaganza of hubris and magical thinking. In what is shaping up to be one of the largest personal and financial collapses in history—if not the largest—Batista may be nearing bankruptcy. On Oct. 1, OGX missed a $45 million interest payment on bond debt it had racked up during its rise. Batista has sold his planes and his helicopter, and creditors are arguing over the remains of his companies. He’s no longer on the Bloomberg Billionaires Index and has become the butt of jokes in Brazil. One suggests that Pope Francis plans to return to Brazil soon and will again be visiting the poor, including Batista.

Batista declined to be interviewed for this story, but journalists are not the only ones asking questions. Brazil’s securities regulator has started an investigation into Batista and OGX after an investor alleged that Batista dumped 126.7 million OGX shares just before the company scrapped projects and warned that it may stop pumping crude next year. In a July op-ed for Brazil’s Valor Econômico newspaper, Batista said he would honor all of his obligations. In that same article, he put some of the blame on his auditing firm and executives for unreasonably building shareholder expectations. The company has denied it gave faulty advice. Once a staple on the airwaves and in print, Batista has mostly gone silent.

Rare is the person—at least until recently—who meets Batista and is not seduced by his supreme self-confidence. As Daniel Lamarre, CEO of Cirque de Soleil, said when announcing a partnership with Batista’s IMX entertainment venture in 2012: “He is alone in his league.”

Batista has always been the leading chronicler of his own legend. He has long liked to tell the story of how as a teenager in Germany, he dreamed of becoming wealthy on gold, and how those dreams came true. At one point, a clairvoyant advised him to go to Machu Picchu, the ancient Inca site in Peru, and gaze at the sky at a certain hour, saying it would bring him luck. “Seems that it worked,” he told Brazilian TV host Jô Soares in May 2011. It’s all part of a mystical streak he embraced, and peddled. His company names all end in X—EBX, OGX, MMX. In his numerology, X stands for the multiplication of wealth.

Batista was born in Governador Valadares, these days a town of about 260,000 in Brazil’s mining state of Minas Gerais, but spent his teens in Europe with his family, hopping from Geneva to Düsseldorf and Brussels as the career of his father, Eliezer Batista da Silva, took off. The elder Batista is a polymath who speaks seven languages, and a giant figure in the industrialization of Brazil. In the early 1960s he ran Vale do Rio Doce, at the time the government-owned mining company, transforming it through his two stints as CEO into the world’s largest iron-ore producer. Known as Vale today, it’s valued at more than $80.6 billion.

Eike Batista studied metallurgy and returned to Brazil in 1980. At the time, thousands of pick-and-shovel peasant miners known as garimpeiros were pushing into the Amazon to look for gold in the jungle. Batista joined the rush as a gold buyer but soon started applying industrial mining to the tracts the peasant miners were working by hand. Arranging financing through a contact of his father’s, Batista went from a 24-year-old bartering gold nuggets to a 30-year-old buying and selling gold mines.

In 1983, Batista and his backers took over Treasure Valley Explorations, a small company trading on the Toronto stock exchange, and renamed it TVX Gold. As CEO, he developed successful mines in Brazil, Canada, and Chile. By 1996 the company was valued at $1.7 billion. He married a Playboy centerfold—Luma de Oliviera—and had two sons, Thor and Olin, named after Norse gods. (The couple divorced in 2004.) Journalists visited him at his marble-clad home high above Rio’s glittering beaches, marveling at the palatial swimming pool, the two home theaters, and “a vista fit for a king.”

Trouble soon arrived, however, with an ill-advised effort to develop a gold mine in Greece that drew huge public opposition over the potential environmental impact. Bogged down in Greece, he pressed ahead with mines in Russia and the Czech Republic, projects that failed on tumbling gold prices and what Batista would later say was his poor choice of managers. By the time he resigned in 2001, TVX, which had once been worth $1.7 billion, had lost more than 96 percent of its value. It was eventually sold to Kinross Gold (KGC) in 2002 for C$875 million ($847 million).

Batista might have been finished but for an oncoming boom that would favor a specialist in resources. Brazil in 2002 entered a period of economic expansion under President Luiz Inácio Lula da Silva, and the next commodities rush was on—this time for oil. “Lula,” as he’s universally known, enacted free-market reforms that created the highest Brazilian growth rates in two decades and helped the country avoid the worst of the 2008 recession. No one benefited more from the economic miracle than Batista.

In 2001 he started a thermoelectric venture in the north of the country, which grew into the utility company MPX Energia, and in 2005 an iron-ore project. Both became public companies.

In July 2007, Batista announced the creation of OGX, which would explore for and produce oil offshore, with early backing from the Ontario Teachers’ Pension Plan and the billionaire Ziff brothers from New York. He did not appear worried about his inexperience in oil and gas exploration and development. He would hire the knowledge he needed, starting with executives from Petrobras (PBR), the state-controlled oil company. Among those he lured from the company was Paulo Mendonça, its exploration chief, whom Batista came to call Dr. Oil. With Mendonça at the helm of OGX, Batista boasted that he now had a “dream team” that would discover deposits that Petrobras had missed.

OGX entered the business aggressively. In November 2007 the company bid at a government offshore oil lease sale, paying $1.3 billion for 21 blocks, seven in what is known as the Campos Basin, off Rio state. The bids for the leases in Campos, which holds 80 percent of Brazil’s output, startled his competitors. OGX offered double what Petrobras was offering for four Campos tracts and outbid Anadarko Petroleum (APC), an offshore specialist, fourfold on another.

“They went in and paid massively; they put multiple times what anyone else put on the blocks,” recalls Rebecca Fitz, an analyst with Washington-based PFC Energy. “They needed to have extraordinary success to recoup. The high bid kind of forced the hand to begin with. They were showing the world they could beat everybody.”

In 2007, Batista purchased a 177-foot-long cruise ship, which he converted to a private yacht and overhauled to run tours and host parties in Rio’s Guanabara Bay. Aboard the Spirit of Brazil VII, he threw parties where he entertained Brazilian soap-opera stars and courted the press. Never shy of displaying wealth in a country with vast income disparity, Batista would also be photographed with his $500,000 Mercedes-Benz SLR McLaren parked in the living room of his mansion in Rio’s Jardim Botânico neighborhood. (In June, Thor Batista, now 21, was convicted of involuntary manslaughter after killing a cyclist while driving the McLaren at night in a low-income Rio neighborhood. He has appealed the conviction.)

A few days after Batista took OGX public in June 2008, oil hit a record $145.30 a barrel. The initial public offering raised 6.7 billion reais ($3 billion), making it the biggest in Brazilian history. “You can see why everybody wanted to jump on the train,” says Ruaraidh Montgomery, a senior analyst at oil and gas researcher Wood Mackenzie. OGX announced it was aiming for more than 1 million barrels a day by 2019—which would have amounted to almost half of Brazil’s total output. They announced potential resources of 4.8 billion barrels, more than a third of Petrobras’s proven reserves. OGX had yet to drill a single well.

Batista’s super port at Açu was the capstone of his master plan—a virtuous cycle in which shipping unit OSX Brasil paid rent to his LLX Logistica unit, while OGX produced natural gas for MPX Energia, which would supply electricity for his iron-ore mines. “If the port wasn’t mine, the port guy would charge me half of my profits,” he said in an interview with a German journalist. “You better control the whole system.”

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