Eike Batista's fate shows a classic liquidity crunch


Eike Batista's fate shows a classic liquidity crunch

SAO PAULO -- Brazilian tycoon Eike Batista is speeding up efforts to shed assets as doubts grow about his ability to continue funding his massive investments and pay back the billions he owes to creditors.

But there is a clash between how much Mr. Batista expects to get for his companies--most of which are in capital-intensive areas such as oil, mining and logistics--and how the market values them.

"This is not a garage sale," said a person familiar with Mr. Batista's thinking.

In many respects, this is a classic liquidity crunch. A number of people believe there are some sound assets among the start-up firms Mr. Batista controls, but that he doesn't have enough money to see them through. In the meantime, his firm has investments to meet and creditors to repay.

"Eike wants a lot for it," said a banker close the tycoon. His high expectations, however, are being crushed by possible buyers who know time is against the seller. "Everyone knows he needs the money now," the banker added.

Mr. Batista declined to comment for this article.

On Wednesday, the EBX Group, as Mr. Batista's holding company is known, said MMX Mineracao e Metalicos, the iron-ore-mining company Mr. Batista founded in 2002, is in talks with Swiss mining company Glencore Xtrata PLC and Dutch commodity firm Trafigura Group, among other firms, about possible deals. On Tuesday, it said it was looking at options for LLX Logistica, which is building the ambitious Acu Superport in Rio de Janeiro.

For the right price, the businessman is open to deals for all of the other firms in the group as well, according to people familiar with his thinking. This includes naval-construction company OSX Brasil, coal-mining unit CCX Carvao da Colombia and gold company AUX.

Mr. Batista is likely to seek to keep smaller stakes, and he may also try to retain some control, just as he did in a deal cut in March with Germany's E.ON for the electric power unit, MPX Energia.

The EBX Group plunged into trouble a year ago, when his flagship oil firm, OGX Petroleo e Gas Participacoes, reported disappointing production numbers, triggering a credibility crisis.

There has been plenty of frustration among EBX executives, who believe the group has attractive assets, according to people familiar with the situation. But there is also a degree of denial. Bad luck is often blamed for the group's problems: the field that OGX chose to develop first, Tubarao Azul, proved problematic, whereas the second up for development, Tubarao Martelo, is far better, those people say.

Mr. Batista certainly has his superstitions. He used the letter "X" in all his companies for good luck, as it is meant to suggest the multiplication of wealth. His lucky number is 63. In an interview in 2008 with Brazilian magazine Epoca Negocios, the tycoon said that was the number of his racing boat. The signing bonuses for Mr. Batista's bids at a recent auction of oil and natural gas exploration concessions in Brazil all ended in 63.

None of that has saved the tycoon in recent weeks. In fact, the problems have been exacerbated by the volatility in global markets, which have been spooked by the possibility that easy-money policies in the U.S. will be withdrawn.

The oil company has a $1 billion put option with Mr. Batista. However, many in the market fear Mr. Batista's cash position could prevent the company from using it. Those concerns were intensified in the last few days with the announcement that three respected members of its independent board, who would decide about the put option, decided the quit it last week. "The collectively decision created even more fears," said Bruno Goncalves, a stock analyst at Sao Paulo brokerage Alpes.

People familiar with the situation, however, say Mr. Batista intends to honor the put, if necessary.

Dow Jones Newswires

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