“Eike is effectively using our assets to give the creditors their share of the $1bn,” said Mr Valporto. “No honest judge will ever accept this,” he said.

Financial Times
Samantha Pearson
16/02/2014

Anger at Batista plan that leaves OGX investors with big loss

FEBRUARY 16 2014

By Samantha Pearson in São Paulo

 Minority shareholders of Eike Batista’s bankrupt oil company have reacted with anger after the former billionaire filed a restructuring plan that will cede control to creditors and leave shareholders with only 10 per cent of the group.

 Óleo e Gás Participações, formerly known as OGX, submitted the plan to a court in Rio de Janeiro on Friday following agreements with holders of $3.8bn in bonds in December and February. Once a judge has accepted the proposal, creditors will vote on whether to approve the plan.

 The filing promises to bring to an end one of the most turbulent periods in Brazil’s corporate history. Mr Batista, who ranked as the world’s seventh richest man only two years ago, had come to symbolise a new era of prosperity and influence for the country.

 But his mining and energy empire imploded last year after the wells of his flagship oil company proved to be duds, sparking a crisis of confidence among investors that forced the firm to file for Latin America’s largest-ever bankruptcy in October.

 However, Aurélio Valporto, an economist who is leading a group of shareholders who are suing Mr Batista and the company’s former independent directors, said the restructuring has come at the cost of minority shareholders.

 “Minority shareholders are being brutally diluted,” he said, adding that the plan also lets Mr Batista off paying the $1bn put option granted to the oil company in 2012. Under the rules of the put option, Mr Batista was supposed to capitalise OGX with $1bn of his own money if the company ever ran into financial difficulties – a form of insurance for investors.

 “By diluting minority shareholders, Eike is effectively using our assets to give the creditors their share of the $1bn,” said Mr Valporto. “No honest judge will ever accept this,” he said.

 Under the restructuring deal, Óleo e Gás will swap shares worth 25 per cent of the restructured company for $3.8bn of debts owed to bondholders, $500m of debts to suppliers, and $1.5bn owed to Mr Batista’s bankrupt shipping company OSX.

 Bondholders and other creditors who have agreed to provide Óleo e Gás with $215m in new loans to finance the company’s ongoing operations will receive 65 per cent of the company in exchange.

 Mr Batista himself will only be left with about 5 per cent of the company. When the talks began Mr Batista had hoped to retain control, said one person involved in the restructuring process. “Then suddenly something clicked and he became very cooperative,” the person said.

 After being forced to relinquish rights to seven of its most promising exploratory offshore blocks last week, the company’s fate now largely rests on Tubarão Martelo – its only producing oilfield.

https://www.ft.com/content/4b55a6a0-9723-11e3-a274-00144feab7de