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Eike Batista bets shakeup stems USD 15 billion stock slide
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Wednesday, 14 Nov 2012
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Bloomberg reported that billionaire Mr Eike Batista is counting on executive changes at his commodities and energy companies to boost shareholder confidence after earnings disappointments and output delays wiped out USD 15 billion in market value this year.

The 56 year old billionaire is introducing the management team, including oil producer Mr Luiz Carneiro CEO of OGX Petroleo & Gas Participacoes SA to investors in New York this week. Mr Carneiro is one of at least five top executives the Brazilian tycoon has named since June. OGX shares fell 64 percent this year before today.

The decline prompted Mr Batista to pledge as much as USD 2 billion in cash to shore up the finances of OGX and his shipbuilding company, sell stakes to foreign investors and offer to take his port operator private. His 4 biggest listed companies reported a combined loss of USD 198 million before interest, taxes, depreciation and amortization in the first nine months of the year, short of Batista’s promise in March that the group would generate USD 1 billion in earnings in 2012.

Mr Arthur Byrnes, who manages about USD 800 million at Deltec Asset Management LLC in New York and plans to attend the panel with Batista and his team said that “Eike is a wonderful entrepreneur, he is a great salesman and I think he sold earlier gains and profits in a lot of his companies than have in fact materialized. He has over promised and under-delivered.”

Confidence Undermined
OGX, the biggest of Batista’s six publicly traded companies, tumbled this year after reducing output targets for its first two wells by as much as 75%. The shares rose 1% to close at BRL 4.90 in Sao Paulo today. Brazil’s benchmark Bovespa index fell 0.5%, paring its gain this year to 0.6%.

However, his MMX Mineracao & Metalicos SA iron ore producer lost 40 percent this year after prices for the steel making material slumped, while port operator LLX Logistica SA fell 30%, power utility MPX Energia SA (MPXE3) slid 14% and the OSX Brasil SA (OSXB3) shipbuilding unit dropped 8.7%. CCX Carvao da Colombia SA (CCXC3), the coal project that Batista spun off of MPX in May, tumbled 74%.

Under the revised management team, the group is reducing its drilling fleet to focus on already made discoveries while Batista’s USD 2 billion pledge gives OGX and OSX additional firepower to compete for new opportunities. The EBX Group Co holding company has about USD 9 billion in cash, enough to guarantee development of all projects.

Unparalleled Access
At this week’s meetings with Mr Batista, Mr Carneiro and the other executives including CEOs and finance chiefs of his six listed companies and his private gold, real estate and entertainment ventures, investors will have unparalleled access to senior management.

Mr Carneiro replaced Mr Paulo Mendonca as CEO of OGX, Mr Batista’s most valuable company, in June after it announced the oil output target cuts. OGX slumped to the lowest in almost 4 years last month and is the second worst performer amid the 818 stocks of the MSCI Emerging Markets Index in 2012. Mr Carneiro was previously the CEO of shipbuilder OSX, which replaced him with Carlos Bellot, a 57 year old chemical engineer with three decades of experience at state run Petroleo Brasileiro SA.

Stumbles
Mr Ed Kuczma, who helps manage about USD 37 billion at Van Eck Associates Corp and who doesn’t hold any shares of Mr Batista’s companies at his Van Eck Emerging Markets Fund said that “Given the couple of stumbles the group has had achieving and executing the goals, it has lost all sort of credibility. We took a wait-and-see approach and it has worked out for us so far.”

The tycoon’s net worth fell from a peak of USD 34.5 billion on March 27th to USD 19.7 billion on November 9th.

Mr Batista remains unfazed. He’s raising his bet on commodities, buying back shares and adding assets. He acquired a 4% stake in Canadian mining company Ivanplats Ltd last month and his AUX gold venture in October bought two Toronto based mining exploration companies with assets in Colombia, Galway Resources Ltd and Calvista Gold Corp. The billionaire also boosted his stake in MMX to 46.4% from 41.4% last month.

Source - Bloomberg

(www.steelguru.com)

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