By Jack Whibley, Contributing Reporter
RIO DE JANEIRO, BRAZIL – Once valued at over US$60 billion, and last year still worth US$35 billion, Eike Batista’s EBX Group is now being forced to seek buyers and partners to restructure and dismantle its energy, port and mining empire. The trajectory is following the trend in Brazil of Petrobras and Vale’s asset shedding.
Project delays, rapid assumption of debt and dwindling confidence in its main companies, mean that the value of EBX’s assets is now less than US$5 billion and its stock prices are causing concern.
The past month has seen shares in the EBX Group tumble following losses to its oil company, a write down of an iron-ore mine, and the sale of its port operating arm.
In mid-August EBX’s mining arm, MMX Mineração e Metálicos, reduced the recovery value of its iron-ore mine in Corumba, Brazil.
At the same time, shares of oil producer OGX Petroleo e Gas Participações lost as much as ten percent in one day when it posted a loss of R$4.7 billion due to the falling value of failed investments. OGX’s shares have fallen by over ninety percent in the past year.
As reported by Reuters, OGX may also return its only producing oilfield, Tubarão Azul, to the Brazilian government because its declining output will not cover the cost of the equipment needed to continue operating.
Port operator LLX Logistica, is due to be taken over by U.S. investment group EIG Global Energy Partners for an investment of R$1.3 billion. The LLX sale to EIG is seen as a key step in the efforts to shore up the EBX Group being made by Eike Batista, once Brazil’s richest man.
Under proposed changes to the Bovespa (the index of stocks that are traded on the São Paulo Stock, Mercantile & Futures Exchange) some EBX company shares could be dropped. According to a statement on the exchange operator’s website, companies whose shares trade for less than one real would be dropped as part of changes in the way it determines the relative importance of individual stocks.
Despite the EBX Group’s fall in value, some investment consultants believe that it may be worth adding certain stocks to an investment portfolio.
Amit Kumar, a financial consultant at Ipanema Wealth who advises clients on long-term wealth creation strategies told The Rio Times, “An investor should only buy such an asset if they genuinely understand and tolerate risk, ideally with a longer investment horizon.”
“For example OGX, whilst being a risky buy, has fallen by 95 percent since the final quarter of 2010. In the same period, Bovespa has fallen by 28 percent and the S&P 500 has increased by forty percent.”
Kumar continues, “Some analysts believe that the global perception of Brazil’s country risk is higher than reality. When looked at together with a weak real, OGX could be at a favorable buy-point. We may take additional comfort from the fact that international hedge funds like Greylock and CarVal are buying OGX, believing it is undervalued.”
The past week has seen some positive news for the shipping arm of the EBX Group. On August 26th, OSX Brasil rose the most of any stock in Latin America upon news that its OSX-3 floating production, storage and offloading vessel had reached Brazil’s waters, and on the appointment of a new chief executive officer.
Marcelo Maia Gomes, who previously worked at a corporate restructuring advisory company, will replace Carlos Eduardo Sardenberg Bellot as CEO of OSX Brasil.