Convicted and US$30 Billion Poorer, Eike Batista Prepares Triumphant Return

RIO DE JANEIRO, BRAZIL – Nothing breaks Eike Batista‘s spirit, so he is rubbing his hands before getting back into “entrepreneurship”. He can’t wait. And he has already begun preparing his return.

Return to where? To the MMX mining company and the OSX shipyard, which were the offspring of the megalomaniac OGX (which no longer belongs to him and is now Dommo Energia). Both are under bankruptcy protection, together totaling debts in excess of R$7 billion (US$1.4 billion). While many individuals are ashamed to enter into a plea bargain and think about how to immerse themselves to be forgotten, Eike is celebrating.

Awaiting ratification by the Federal Supreme Court (STF) of his conviction – which should earn him a year in jail and an additional R$800 million fine – Eike is preparing his return to the business world. The agreement is linked to the investigation of the mega-corruption scheme of the ex-governor of Rio de Janeiro Sérgio Cabral. Eike truly believes he can and will turn the page.

Despite being convicted of market manipulation by the Brazilian Securities and Exchange Commission (CVM) and the Courts, and barred from holding management positions in publicly traded companies for the next seven years, Eike Batista is changing the management of MMX and OSX subsidiaries.

As he cannot sit in the chair himself, he will appoint administrators he trusts in place of the current ones. Once again, he is brimming with miraculous ideas, which are typical features to him.

At MMX, the change is now a fact and with consequences for the market. In addition to the change in the board, he brought back to the presidency Joaquim Martino, who was in the company in the past. He is part of the first team of executives linked to the entrepreneur, the group that enriched and received bonuses ranging from R$70 million to R$200 million.

The mining company’s shares rose from R$4 to over R$10, following the new administration’s initiatives. The high has attracted the attention of the CVM, which has questioned the company.

The appreciation is driven by a request made to the Courts, within the bankruptcy protection proceeding, to cancel a contract to assign the exploitation rights of one of the company’s mines. In a petition from the Galdino Coelho law office, the new MMX claims that there was a free waiver of an asset that would be worth US$300 million and wants it back, based on an earlier appraisal conducted on the company’s assets. The information gave rise to much speculation about the company’s shares.

At OSX, the change is still in progress and has not been completed. The proposal will be voted in a shareholders meeting on October 14th. Among the names mentioned are executives who work at the EBX holding company – where people close to them say that Eike works every day – even on his wife’s business.

The arguments for the changes have been many: from wanting to complete the ongoing proceedings to the allegation that there was a potential investor, which required the change. MMX, which owes R$600 million, has been declared bankrupt. Its liquidation is not in progress due to a court injunction. The debt at OSX is ten times higher: R$6.5 billion.

However, EXAME news outlet found that the real reason for this prepared return is Eike’s belief – in his unique optimism – that he can recover these companies, that there is wealth to be exploited and, furthermore, that it is feasible to pay everyone, particularly all the fines imposed on him. From his point of view, the current management of both companies was there just to proceed with the recovery plans, but with no intention of renewal and revitalization.

In addition to the corporate debts, there are personal pending issues. In the market manipulation case, R$540 million in fines imposed by the CVM are due – which together with the denunciation report total R$1.3 billion. Eike has appealed to the National Financial System Appeals Council against the penalty handed down by the market regulator.

Eike has also been talking to friends about several other far-fetched business ideas, a recurrent feature of his prior trajectory. In spite of the enormous confusions he created, two assets are routinely recognized as successful: the project of the Northeast thermal power plants, housed in the old MPX (today Eneva), and the Port of Açú in Rio de Janeiro- both changed hands during the restructuring process of the group’s debts.

Optimism remains, money is lacking

Those who know Eike Batista do not doubt his optimism, but not all explanations for the current endeavor are as romantic. Sources close to the situation point out that there are delays in the payment of EBX employees and that the entrepreneur is lacking cash, since his funds and assets are blocked by the courts – which the denunciation can partly solve. Nevertheless, there is no one close to him who believes there is enough equity to pay off all commitments.

Eike Batista lost US$30 billion. This is the sum his business achieved at the peak of the euphoria with the “X” branded stocks he controlled. Although time proved that the companies were not worth what they seemed, the entrepreneur lived as if he owned all these assets. He accumulated not only luxury cars, real estate, airplanes and a customized boat for his habits and tastes (auctioned in 2018 and that he dreams of recovering as well). He would indulge in all the crazy whims that these figures could buy.

Thus, access to these companies would be a means to obtain some source of liquidity, at least for some obligations. Despite being in extreme financial distress, the companies still have some revenue flow. OSX, for one, had a net revenue of R$5.5 million in the first semester of 2020 and MMX collects approximately R$100,000 per month.

Of the three names listed for OSX, two are currently linked to the family business. João Manoel de Lima Monteiro is an EBX executive and Willian de Mello Magalhães Júnior is ex-OGX and this year he was the expansion director at PowerLook, a company owned by Eike’s wife. The third person cited is Roberto Hukai, ex-MMX and ex-CCX, the coal company in liquidation.

According to sources, OSX’s management is very concerned about the matter. However, the company’s CEO Pedro Borba declined to comment on the matter. Independent advisor Rogério Alves de Freitas tried to suspend the meeting at the CVM that will address the changes but to no avail. Historically, when there is no illegality in the proposed agenda, the authority does not grant the request, complying with what the law says.

In Eike’s case, the issue raises debate, due to the practical inconsistency of the conviction. The entrepreneur is removed from the management, but his shareholder rights are not revoked – the blocking or broad suspension of a shareholder’s rights are unusual except in specific circumstances. The changes are being made by Eike as the controlling shareholder and not as the manager.

Eike’s attorneys have relied on this argument to allow him to take the initiative. The substance of Freitas’ request was ultimately not appreciated by the CVM’s directorate, specifically the debate as to whether he could place people clearly under his direct command at the head of the companies. But the subject is yet to be continued.

Source: Exame