Brazil’s richest man offers risky but alluring IPO

March 11, 2010

A $5.6 billion IPO of a firm with no profit harkens back to the internet-bubble era. But OSX Brasil is a chance for investors to bet on Brazil’s burgeoning reserves and Eike Batista, the fastest riser on the Forbes rich list. The combination makes it sound more Amazon than Pets.com.

A first glance at the company’s financials gives reason for pause. It posted an operating loss of $19.6 million. But it hardly reflects the promise. Even if Brazil’s oil reserves fail to justify the hype, there is likely to be a need for OSX’s ships and drilling rigs to find out. Batista’s oil and gas company, OGX, has a $4 billion budget to sink into exploration and production.

The incestuous relationship between these sisters helps to ensure OSX will get the bulk of any future orders. OGX has yet to drill a dry well but may be sitting on resources of 6.7 billion barrels of oil and gas — equivalent to roughly three years of production at Exxon Mobil. State-owned giant Petrobras has set aside about $30 billion to spend on drill ships and platforms. With the government giving preference to domestic suppliers, OSX can expect an inside track here too.

Then there’s Batista himself — just crowned the world’s eighth richest man. The former powerboat racer likes to add an “X” to his companies’ names to denote the multiplication of funds investors can expect. So far he hasn’t let them down.

Of the four he has floated since mid-2006, three of them — OGX, LLX Logistica and MMX Mineracao and Metalicos  — have been stock market stars, outperforming Brazil’s benchmark index. Even the one initial disappointment — electric utility MPX Energia — Batista turned into an image-booster by donating his 30 percent stake in nine power plants to compensate investors for the company’s post-flotation slide.

Batista has also shown a flair for timing. The June 2008 listing of OGX came just a month before oil hit its $147 peak.

The sluggish IPO market globally makes his latest foray seem odd. But the optimism for Brazilian crude and the golden-boy entrepreneur should be enough for investors worried about OSX’s lack of revenue and profit to set aside any bad memories of online pet food that spring to mind and reflect more on the river that runs through its home country.

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