Brazilian oil giant OGX heading for bankruptcy
by Juan Pablo Spinetto,
2013-10-30 05:30:12.0
RIO DE JANEIRO — OGX Petróleo & Gas Participações said on Tuesday it had failed to reach an agreement with holders of its dollar-denominated bonds.
The oil company founded by former billionaire Eike Batista is heading towards Latin America’s biggest corporate debt default.
Discussions between OGX, which is running out of money to test its most promising field, and holders of bonds due in 2018 and 2022 concluded without any restructuring agreement, the Rio de Janeiro-based company said.
The breakdown opens the way for a bankruptcy protection filing that would put $3.6bn of dollar bonds into default, the region’s largest on record, and culminate a 16-month decline that wiped out more than $30bn of Mr Batista’s personal fortune after offshore deposits he had valued at $1-trillion turned out to be duds.
"He tried to do too much too fast and he tried to do that with borrowed money," Arthur Byrnes, senior MD at Deltec Asset Management, who sold all OGX notes before June, said by phone from New York.
"He has failed and the whole thing is a shame because any country needs aggressive and successful entrepreneurs."
Mr Batista became Brazil’s richest man after raising billions of dollars in equity markets and loans from a state bank to fund OGX’s drilling programme, and sister commodities start-ups.
He then tapped debt markets, selling bonds to investors including BlackRock and Pacific Investment Management.
OGX was continuing to evaluate debt restructuring options, it said on Tuesday. The company expected to run out of cash in the last week of December, it said on October 23. "New capital from either debt or equity financing is required to bridge near-term liquidity in the first quarter of 2014," OGX said on Tuesday.
"OGX is evaluating a number of farm-out opportunities to fully fund the mid-to long-term business plan," the company said on its website.
The company missed a $45m payment on October 1, prompting Standard & Poor’s to assign a default rating to $1bn of bonds. Moody’s Investors Service and Fitch Ratings are giving OGX the 30-day grace period before calling a default. The period of grace expires on Thursday.
Earlier this month, two people with direct knowledge said OGX was considering filing for bankruptcy protection late this month or early next month. Once a judge accepts a filing, the company would have 60 days to present a restructuring plan.
OGX risks having the country’s oil regulator revoke its 30 oil and natural gas licences in Brazil if it files for bankruptcy, said Sao Paulo-based TozziniFreire Advogados, a law firm that has clients in the oil industry.
The head of Brazil’s oil regulator, Magda Chambriard, said on October 17 the regulator had not decided if OGX would keep its oil fields if it goes into bankruptcy protection.
Shares of OGX, which Mr Batista founded in 2007, have lost 94% in the past 12 months, the worst-performing stock among 73 members of the Brazilian benchmark Ibovespa index, after a series of missed output targets.
Mr Batista had asked bondholders to convert debt into equity, diluting his role in the company, two people with knowledge of the matter said. OGX’s $2.56bn in bonds due in 2018 trade at 8c on the dollar.
Bloomberg
EBX CEO Eike Batista. Picture: REUTERS
RIO DE JANEIRO — OGX Petróleo & Gas Participações said on Tuesday it had failed to reach an agreement with holders of its dollar-denominated bonds.
The oil company founded by former billionaire Eike Batista is heading towards Latin America’s biggest corporate debt default.
Discussions between OGX, which is running out of money to test its most promising field, and holders of bonds due in 2018 and 2022 concluded without any restructuring agreement, the Rio de Janeiro-based company said.
The breakdown opens the way for a bankruptcy protection filing that would put $3.6bn of dollar bonds into default, the region’s largest on record, and culminate a 16-month decline that wiped out more than $30bn of Mr Batista’s personal fortune after offshore deposits he had valued at $1-trillion turned out to be duds.
"He tried to do too much too fast and he tried to do that with borrowed money," Arthur Byrnes, senior MD at Deltec Asset Management, who sold all OGX notes before June, said by phone from New York.
"He has failed and the whole thing is a shame because any country needs aggressive and successful entrepreneurs."
Mr Batista became Brazil’s richest man after raising billions of dollars in equity markets and loans from a state bank to fund OGX’s drilling programme, and sister commodities start-ups.
He then tapped debt markets, selling bonds to investors including BlackRock and Pacific Investment Management.
OGX was continuing to evaluate debt restructuring options, it said on Tuesday. The company expected to run out of cash in the last week of December, it said on October 23. "New capital from either debt or equity financing is required to bridge near-term liquidity in the first quarter of 2014," OGX said on Tuesday.
"OGX is evaluating a number of farm-out opportunities to fully fund the mid-to long-term business plan," the company said on its website.
The company missed a $45m payment on October 1, prompting Standard & Poor’s to assign a default rating to $1bn of bonds. Moody’s Investors Service and Fitch Ratings are giving OGX the 30-day grace period before calling a default. The period of grace expires on Thursday.
Earlier this month, two people with direct knowledge said OGX was considering filing for bankruptcy protection late this month or early next month. Once a judge accepts a filing, the company would have 60 days to present a restructuring plan.
OGX risks having the country’s oil regulator revoke its 30 oil and natural gas licences in Brazil if it files for bankruptcy, said Sao Paulo-based TozziniFreire Advogados, a law firm that has clients in the oil industry.
The head of Brazil’s oil regulator, Magda Chambriard, said on October 17 the regulator had not decided if OGX would keep its oil fields if it goes into bankruptcy protection.
Shares of OGX, which Mr Batista founded in 2007, have lost 94% in the past 12 months, the worst-performing stock among 73 members of the Brazilian benchmark Ibovespa index, after a series of missed output targets.
Mr Batista had asked bondholders to convert debt into equity, diluting his role in the company, two people with knowledge of the matter said. OGX’s $2.56bn in bonds due in 2018 trade at 8c on the dollar.
Bloomberg
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