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Brazil's Eike Batista: From billionaire to bankruptcy

Eike Batista's oil firm OGX is bankrupt. His is a cautionary tale for Brazilians and investors who embraced a boom built on hype.

October 31, 2013|By Vincent Bevins
  • Eike Batista of Brazil, once considered the seventh-richest man in the world, attends an event in Rio de Janeiro in May 2012. His flagship oil firm, OGX, filed for bankruptcy protection this week.
Eike Batista of Brazil, once considered the seventh-richest man in the… (Santi Carneri / European…)

SAO PAULO, Brazil — A little over a year ago, Brazilian playboy Eike Batista was reputed to be the seventh-richest man in the world and was in the habit of boasting loudly that he'd soon be No. 1. By this week, he had become one of the world's biggest paupers.

On Wednesday, his flagship oil company, OGX, filed for bankruptcy. A personal fortune once valued at $30 billion had collapsed into a personal debt estimated at more than $800 million. Some Brazilians, long since soured on his cocky persona, responded with glee on social networks to the news that Batista's yacht, the Pink Fleet, would soon be sold for scrap.

No one wanted, or could afford, the $19-million boat intact.

Batista's spectacular fall may say more about his personal failings, and what Alan Greenspan called the "irrational exuberance" of the market, than it does about Brazil. It turned out that his much-hyped empire was built on vastly overconfident assumptions — in particular, oil deposit estimates that bore no relationship to reality.

"He ended up swallowed by his own myth," columnist William Waack wrote for Brazil's Globo media group.

Still, as Brazil's economy sinks back to reality after boom-time highs, his implosion has served as a warning to investors, and to Brazilians at large, that much of the fabulous wealth that was on the horizon so recently was based on little more than promises.

Batista "is vain. And at a certain point his vanity prevailed over common sense," said Adriano Pires, director of the Brazilian Infrastructure Center, an energy consulting firm in Rio de Janeiro. "The case of Batista is not just bad for him and the companies around him, it is very bad for all of Brazil, especially in a moment when we need international investors. He is blemishing Brazil's credibility a little all around the world."

Batista grew up the son of Brazil's wealthy former minister of mines and energy. In a country famous for corruption and nepotism, it seemed a bit more than coincidental when the younger Batista literally struck gold in the mining industry in the 1980s, despite the assertion in his autobiography, characteristically titled "The X Factor: The Path of Brazil's Greatest Entrepreneur," that his fortune was the result of hard work and ingenuity.

He acquired government licenses to exploit some of Brazil's newly discovered offshore oil reserves, and created an interconnected set of energy, mining and logistics companies based around the wells. He cashed in big from international investors, selling stock at a moment when the world believed more than ever in a Brazilian boom and, after the shock of the U.S.-based financial crisis, was looking for a new place to invest.

It was a heady time for Batista and for Brazil. The economy was in rapid expansion, the government was extremely popular, and a rising middle class was euphoric with higher wages. Certifying the country's ascendance, Brazil was awarded the 2014 World Cup and 2016 Olympics.

Amid assurances of big gains — each of his companies had the letter X in its title, signifying multiple returns — his personal fortune soared, even as the companies brought in little revenue. After he tapped equities markets for all they were worth, he turned to debt markets, borrowing even more to pump up his companies.

"He built his empire based on what have now been proven to be very unrealistic expectations," said Tony Volpon, a New York-based economist for international bank Nomura Securities. "He made the cardinal sin of using debt to finance what were very risky exploratory activities in oil, and no one does that."

"He didn't understand that oil and gas projects are high-risk ventures," said Pires, of the energy consulting firm. "In this business there is no certainty, just probability. He went around preaching and promising."

Batista branched out into luxury hotels, rock festivals, restaurants, soccer and ultimate fighting, all without much economic logic behind them, Pires added.

Things began to fall apart last year in dramatic fashion. His bodybuilder son, Thor, struck and killed a cyclist while speeding in a million-dollar Mercedes-Benz SLR McLaren that the Batistas had been in the habit of keeping on display in their living room. The public was shocked by Eike Batista's response, as he took to Twitter to blame the "carelessness" of the cyclist, an impoverished cargo worker who had to commute by bike on a dangerous highway.

Soon after, it became clear that some OGX wells wouldn't hit production targets, and the money began to fall away. Batista again took to Twitter, this time to attack those who didn't believe in him.

After deposits he valued at more than a trillion dollars turned out to be woefully small this year, his company lost more than 96% of its value and has been unable to pay back creditors. Brazil's state-run banks, which had supported Batista's companies, backed away.

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