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Batista cedes control of oil explorer in $5.8 billion debt deal

BY HELDER MARINHO

RIO DE JANEIRO (Bloomberg) -- Former Brazilian billionaire Eike Batista ceded control of Oleo & Gas Participacoes SA to creditors in a deal to convert debt of about $5.8 billion into a 90% stake in the oil company, two months after defaulting in Latin America’s biggest-ever corporate debt debacle.

The accord, which includes restructuring dollar bonds, may help the Rio de Janeiro-based explorer formerly known as OGX Petroleo & Gas Participacoes SA emerge from bankruptcy. Batista, once Brazil’s richest man and the eighth-wealthiest on earth with a fortune topping $30 billion, struggled to save an empire that included a shipbuilder and port developer since mid-2012, when OGX began missing targets.

“The agreement on the debt restructuring means investors still believe the company has long-term investment values and its prospects are sound,” said Wu Kan, a Shanghai-based money manager at Dragon Life, which oversees about $3.3 billion. “Losing control of the company is the price that has to be paid otherwise bankruptcy would be the only outcome.”

Holders of $3.8 billion of bonds issued by unit OGX Austria GmbH are expected to commit to an investment of $200 million to $215 million in the form of Debtor-in-Possession financing, which will be converted into a stake of 65 percent, Oleo & Gas said in a Dec. 24 regulatory filing. The plan also includes a $1.5 billion payment to OSX Brazil SA, Batista’s oil service unit, as compensation for cancellation of orders, and $500 million in payments to other suppliers.

Billions Raised

The proposal still needs to be approved by all creditors and by the court in charge of the company’s bankruptcy protection plan. If implemented, the agreement would leave the existing shareholders with a 10 percent stake in the company, according to the statement.

The company expects to run out of cash in the last week of December and needs about $250 million to sustain operations through April, it said in an Oct. 23 presentation to Rothschild, the adviser hired by its bondholders.

Batista, 57, had raised billions of dollars in equity markets to fund OGX’s drilling program and other commodities startups. He then tapped debt markets, selling bonds to investors including BlackRock Inc. and Pacific Investment Management Co. When some of the oil deposits he had valued at $1 trillion turned out to be duds, OGX lost 98 percent of its value and depleted cash.

Falling Stock

The stock dropped 9.5% to close at 19 centavos in Sao Paulo on Dec. 23, the lowest since Dec. 5. The company’s $1.063 billion of 8.375% notes due April 2022 and sold to investors at par in March 2012 were trading at 8.5 cents on the dollar Dec. 24, according to prices compiled by Bloomberg. The notes were trading at 83.825 cents on the dollar at the start of the year.

The company’s $2.563 billion of 8.5 percent notes due June 2018 and sold to investors at par in May 2011 were trading at 8.748 cents, down from 89.894 cents at the beginning of January.

Oleo & Gas said last week it plans to produce about 32,000 barrels a day from its Tubarao Martelo field once it has six to seven operating wells. The field is in a region where the company previously missed output targets. The company expects to surpass results from its first project in the Campos Basin where production started strong and then faded after compartmentalized geology hindered the flow of oil.

Last month, Malaysia’s Petroliam Nasional Bhd. canceled a contract to buy a 40 percent stake in two offshore exploration blocks that include Tubarao Martelo, after estimates were slashed.

12/28/2013

 

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