Brazil's OGX in Talks for Merger Options

Source: Reuters 10/18/2013, Location: South America

OGX Petroleo e Gas Participaçoes SA, the ailing Brazilian oil producer controlled by tycoon Eike Batista, said on Friday it is in talks with potential investors for merger options that could include a capital injection.

So far, the talks have not resulted in a binding agreement with any investors, OGX said in a securities filing. Vinci Partners, the only investment firm mentioned in the filing as a potential suitor, denied that it is engaged in any type of negotiations with OGX.

"As soon as any negotiation with a potential investor is confirmed, the company will make the necessary disclosures," the OGX filing said. OGX hired financial advisory firm Angra Partners, Blackstone Group LP and Lazard Ltd to conduct a review of its business model.

The ongoing back-and-forth between Batista and his advisors, with Vinci denying its interest in OGX for a second day in a row, highlights the rocky restructuring process OGX is undergoing. The company has failed to produce oil at the expected rate and is saddled with over $5 billion in debt. Two sources close to the situation told Reuters this week the company could be forced to file for Brazil's largest-ever bankruptcy protection within weeks.

The company's fall has pushed Batista off his perch as the world's seventh-richest man and has led to a struggle between shareholders, banks and bondholders. The unraveling of Batista's energy and mining conglomerate Grupo EBX has also become a symbol of Brazil's recent economic woes after a decade-long boom made it one of the world's hottest emerging economies.

OGX shares fell 5 percent on Friday after a 15 percent tumble on Thursday. They are down almost 94 percent this year. On Friday, the price on OGX bonds due in 2018 rose by 2 cents to about 12 cents on the dollar.

Bond investors who have been burned in Brazil recently are closely following talks between OGX and creditors to see if they will result in a bankruptcy filing or sale to a rival.

On Wednesday, one source said Batista is at odds with holders of $3.6 billion in OGX bonds after how he has handled the process, including the ouster of several executives and the replacement of four or so advisory firms. Batista wants creditors to inject at least $150 million into the company to avert a shutdown, a second source added that day.

OGX was forced to the negotiating table after missing a $44.5 million interest payment on its debt on Oct. 1. The company has said it does not plan to use a 30-day grace period that expires at the end of October to honor the obligation. The company faces an additional $100 million in interest payments in December.

Tuesday's ouster of Luiz Carneiro as chief executive of OGX was the latest in a dozen management reshuffles that Batista hoped would shore up confidence in his flgaship company. The move handed more power to Angra, one of the sources said.

As the collapse of Batista's empire has accelerated over the past three months, Angra and its senior partner, Ricardo Knoepfelmacher, have sought to arrange for bankruptcy protection to shrink OGX and sister company and shipbuilder OSX Brasil SA and save them as going concerns. Nearly all OSX business involves building or leasing vessels for OGX, which is not producing enough oil and gas to pay for them.

Batista founded the oil company in 2007 and the following year raised $4.2 billion in an initial public offering. The OGX IPO, which took place a few months before the collapse of U.S. investment banking giant Lehman Brothers Inc rattled global financial markets, was Brazil's largest-ever at the time. About 63 percent of the money Batista raised in the offering, or $2.6 billion, came from foreign investors.

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Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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