Brazil’s richest man overpromises, underdelivers
By Raul Gallegos
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Brazilian billionaire Eike Batista is swiftly falling from favor. His flagship oil company OGX lost 25 percent of its value Wednesday after massively cutting the output expectations of some key oil wells. Batista is a savvy salesman and wheeler-dealer but his failed promises are building up rapidly. Investors smartly no longer take him at face value.
Brazil’s richest man sold the market on his EBX group of loss-making companies mainly on the strength of his promises. He pledged to turn EBX into a world-class energy conglomerate, with stock market listings of subsidiaries including a record-breaking oil explorer, a leading Colombian coal miner and a major shipbuilder in Brazil, to name just a few of his dreams.
But these companies are not yet producing coal or christening new ships. OGX just began pumping oil this year. And it now appears to be falling short of its lofty goals. On Tuesday the group cut output projections for its offshore Tubarao Azul field to 5,000 barrels a day from about 20,000.
Batista has vowed to multiply the wealth of those who invest with him but has so far mainly destroyed it. After Wednesday’s plunge, OGX has a market value of $9.8 billion, merely a third of its 52-week high in late February. The OSX shipbuilding unit has also seen similar declines since going public in 2010.
Investors are finally losing faith in the Batista gospel. Lowly public shareholders that bought into the various listed companies are already licking their wounds while A-list investors, such as General Electric and Abu Dhabi, which bought into EBX this year, are farther away from turning a profit. Just last week Batista sold half of his unlisted AUX gold mining company to an undisclosed investor for $2 billion. With a skeptical market, monetizing further assets will be tricky.
Batista seems to be getting the message, to a point. He has surrendered the chief executive title at OGX to one of his lieutenants, arguing new leadership can guide the company through its production phase, but he remains chairman. Just how this will enhance the company’s ability to deliver or reassure investors after continued disappointments is a mystery.