The Ex-man

IFR Americas Review of the Year 2013
9 min read

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Some bankruptcies come out of nowhere, leaving everyone shaking in their boots. Others seem to unfold in slow motion over a period of months, losing none of their shock value with each step.

Eike Batista and his “X” empire belong fully in the latter camp, as the flamboyant Brazilian entrepreneur has gradually seen his empire crumble. The X affixing each of his group divisions was originally dreamed up as a promotional ruse to denote the multiplication of wealth. But it now comes across as an ironic joke.

Batista’s flagship energy firm OGX filed for bankruptcy protection in Rio de Janeiro in late October. Just over a week later, his shipbuilder OSX followed suit.

Batista’s best assets, the ones that helped place him seventh on the Forbes rich list in 2012 with a fortune of US$30bn, are now either in receivership or in the hands of others.

It’s quite a fall from grace for a man who started his working life in the 1970s as a gold trader in the Amazon, and who, before his fall, counted presidents, sheikhs, and celebrity global CEOs among his friends.

Over the course of just five years, beginning in 2006, Batista publicly listed five start-ups, including OGX, which raised US$3.6bn in a 2008 IPO. His wealth and global standing grew with every successive share offering. A genuinely brilliant salesman, an aura quickly developed around him. Batista became known as the “PowerPoint King” for his ability to list companies that were often little more than business plans.

The rising tide

Investors were swept along in his wake. Some made money, notably those that joined the ride early. Gavea Investimentos, a Rio-based hedge fund founded by former Central Bank of Brazil president Arminio Fraga, pumped US$40m into OGX during a 2007 private equity round, profiting handsomely after the firm went public. Another early backer, Ontario Teachers’ Pension Plan, has said it booked a “10-digit” profit from a bet on OGX.

Several investment banks also made out like bandits. Credit Suisse, which underwrote the IPOs of OGX and OSX, which raised US$1.6bn in March 2010, earned millions of dollars in fees from its new best friend. (Some banks were more cautious: Bank of America declined a role on the OGX sale after an analyst warned that the numbers did not add up.)

Batista’s limitless ambition and financial largesse also benefited key managers and engineers. Perhaps his shrewdest move was to hire a “dream team” of senior executives from the Brazilian state oil giant Petrobras. This group included OGX’s then president, Paulo Mendonca, introduced to investors as “Dr Oil” – the implication being that he alone knew where the black stuff was to be found.

Meanwhile, Batista’s plans to build a full-service business empire, under the corporate umbrella EBX, continued to take shape. Even the financial crisis failed to dampen his hunger for more capital, wealth, and prestige.

All were part of the same jigsaw. OGX would pump oil to be exported from Brazil through super-ports built and owned by LLX, on ships built by OSX, all powered by his energy division, MPX.

Investors continued to pile in, from General Electric to the miner Anglo American and Abu Dhabi’s sovereign wealth fund. Brazilian state development bank BNDES lent him US$3bn; the New York-based Ziff brothers wrote him a cheque for US$900m.

Batista’s demise was surprisingly slow and sedate, at least compared to the bankruptcies of Lehman Brothers or MF Global. Portions of his empire were systematically sliced off and sold

All drew comfort from the fact that Batista was heavily invested in his own companies, pumping US$400m of his fortune into OGX alone. The erroneous assumption – there are shades here of the British tycoon Robert Maxwell – was that Batista would bail out any struggling “X”.

Further high points in Batista’s variegated career came in October 2009, when he helped bankroll Rio’s successful bid for the 2016 Olympics, and the day 12 months later when OGX’s market cap peaked at US$34bn.

Things fall apart

In hindsight that was Batista’s high-water mark; only as the waves receded was his alarming lack of clothing finally revealed. The troubles, in truth, began as early as 2007, when the Brazilian government reversed a decision to auction off deep-water oil fields, leaving OGX to bid for tired shallow-water fields picked over for decades by Petrobras.

At first all looked OK. In October 2009, Dr Oil reported a discovery of up to 1.5bn barrels of oil in the Campos Basin. But this find proved illusory, a declaration made more in hope than expectation. In June 2012, OGX was forced to cut guidance for its most valuable field, Tubarao Azul, later saying production would halt entirely in 2014. Most of their Campos fields, OGX later revealed, were entirely depleted.

Batista’s demise was surprisingly slow and sedate, at least compared to the bankruptcies of Lehman Brothers or MF Global. Portions of his empire were systematically sliced off and sold.

Mining firm MMX was sold to Abu Dhabi’s Mubadala and Dutch trader Trafigura in October 2013 for US$996m, including debt. LLX went the same month, bought by US investment firm EIG Global Energy Partners for US$560m. MPX is now controlled by Germany’s E.ON; CCX, his Colombian coal unit (a rare non-Brazil asset) went to the Turkish group Yildirim.

OGX’s bankruptcy filing on the last day of October 2013 was inevitable, but in truth the final curtain fell on the first day of the month when the firm defaulted on US$1bn worth of debt, failing to meet a US$45m payment on US dollar notes due 2022. Standard & Poor’s immediately assigned the company and its bonds a default rating.

No power, no point

Fighting now begins over the corpses of OGX and OSX. A few – those that got out early – were winners with Batista but he created far more losers. The losers include major US fixed-income investors like Pimco, which stands to lose billions if the OGX bankruptcy hearing finds in favour of the debtor.

Batista’s investors, from the Brazilian government down to seasoned investors in distressed debt, who took a punt on OGX’s sinking bonds at 20 cents on the dollar in July and August, are trying to recoup around US$20bn in debt and equity. OGX’s bankruptcy protection meanwhile puts US$3.6bn of dollar-denominated bonds in default – ironically the exact total raised by the company in its 2008 listing.

Nor was the damage wrought by Batista’s quest for world dominance merely financial. Cynthia Carroll, the former chief executive of Anglo American, was forced out of the company last year after overpaying for one of Batista’s mining assets. Anglo later said the mine, which cost US$4.6bn, would cost a further US$8.8bn to become fully operational.

Batista’s reputation will likely never recover from the events of the past year. “I think he’s toast,” said Sam Aguirre, a senior managing director at FTI Consulting in Sao Paulo specialising in Latin America debt restructurings. “People don’t tend to forget these things.”

Not that the PowerPoint King will go hungry. He sold 70.5m worth of shares in OGX in May 2013, netting US$57m, and claims still to have a personal fortune of US$1bn. Though how much of that will remain after twin bankruptcy hearings judge his X-rated fall from grace remains to be seen.

To see the full digital edition of the IFR Americas Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email