Oct. 30 (Bloomberg) -- OGX Petroleo & Gas Participacoes SA, the oil company controlled by former billionaire Eike Batista, is filing for bankruptcy protection in Rio de Janeiro today, Batista’s lawyer Sergio Bermudes said by telephone.
The filing would put $3.6 billion of international dollar- denominated bonds into default in the largest corporate debt debacle on record in Latin America. An Official at OGX’s Rio press office, who isn’t an authorized spokesperson, declined to comment.
The move marks the final chapter in Batista’s demise as poster child for Brazilian entrepreneurialism. First the Rio businessman 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 deposits he’d valued at $1 trillion turned out to be duds, OGX lost 98 percent of its value and ran out of cash.
“He got excessive leverage, the cash flow and the value expectations of the assets didn’t materialize and the market has been penalizing him with impatience,” Terence Ortslan, who has known Batista since the mid-1980s and now heads Montreal-based research firm TSO & Associates. “You have to deliver and he didn’t.”
Today’s filing, called a judicial recovery in Brazil, follows months of negotiations to restructure the dollar bonds, in which OGX sought to convert debt to equity and secure as much as $500 million in new funds. OGX said Oct. 29 that the talks concluded without an agreement. The company’s cash fell to about $82 million at the end of September, not enough to sustain operations further than December.
Restructuring talks were complicated by OGX’s cash burn and need to fund testing of its most promising oil field, Tubarao Martelo.
The oil company missed a $45 million payment on Oct. 1, prompting Standard & Poor’s to assign a default rating to $1 billion of bonds. Moody’s Investors Service and Fitch Ratings are giving OGX the 30-day grace period before calling a default. That period expires tomorrow.
While Batista is yet to decide, his shipbuilding company OSX Brasil SA probably will also seek protection against creditors, said a person with direct knowledge of the plans.
By filing for bankruptcy protection, OGX risks having the country’s oil regulator revoke its 30 oil and natural gas licenses in Brazil, according to Sao Paulo-based TozziniFreire Advogados, a law firm that has clients in the oil industry.
The oil regulator, known as ANP, said by e-mail yesterday that the company would be allowed to keep its blocks under bankruptcy protection provided it has the funds to operate them.
--With assistance from Peter Millard in Rio de Janeiro and Cristiane Lucchesi and Francisco Marcelino in Sao Paulo. Editors: Robin Saponar, James Attwood