Brazil's Eike Batista, who was worth US$30 billion only a year and a half ago, is now worth a scant $200 million because of his industrial group's breakdown. Jonathan Alcorn / Bloomberg
Brazil's Eike Batista, who was worth US$30 billion only a year and a half ago, is now worth a scant $200 million because of his industrial group's breakdown. Jonathan Alcorn / Bloomberg

Another tear in Brazilian billionaire Eike Batista's pocketbook



OGX Petroleo e Gas Participacoes, one of the companies owned by Brazil's former richest man, Eike Batista, has been rated worthless, the latest chapter in the crumbling of the magnate's industrial empire.

Analysts at Deutsche Bank and Bank of America estimated the stock to be worth about 4 cents, while Marcos Elias, a partner at the Sao Paulo-based brokerage Gradual Investimentos, said on Friday the company's value was close to zero.

The decline of OGX, once Brazil's second-biggest oil company by market value, further dials down the clock on Mr Batista's race to offload parts of his oil and gas, mining and ports businesses before they run out of cash. Several potential investors, including Mubadala Development, the strategic investment company owned by the Abu Dhabi Government, are reportedly circling.

The speed of the unravelling of Mr Batista's fortunes has been as rapid as it is dramatic.

Sitting on an estimated fortune of more than US$30 billion as recently as 18 months ago, the world's seventh-richest man at the time was talking up his chances of supplanting Mexico's Carlos Slim from the number-one slot by 2015.

But in July his wealth had tumbled to just $200 million, according to Bloomberg. Shares in OGX have sunk as much as 90 per cent, and shed roughly two-fifths of their value in the final half-hour of trading on Friday.

Elsewhere, Mr Batista has been looking to divest from the mining, ports, ship building and energy units of EBX Group, the conglomerate whose companies were once worth as much as $60bn.

The reasons behind the reversal in fortunes are numerous. One of the first signs of trouble emerged when OGX said last year that it was producing only 17,000 barrels of oil and natural gas equivalent a day at its first field, much less than it had planned. The admission coincided with a downturn in metals mining, another cornerstone of Mr Batista's empire. Against the backdrop of a cooling Brazilian economy, rising debt throughout the business began to look unsustainable, investor confidence steadily ebbed and stock prices nosedived.

It was all a contrast from earlier years, when EBX emerged as the natural choice for investors wanting exposure to Brazil's sizzling expansion. Between 2004 and 2010, Mr Batista was able to borrow cheaply to create a group of companies spanning mining to logistics.

In the process, big investors including Pacific Investment Management and BlackRock bought in. Business was still running smoothly when Mubadala struck a $2bn investment deal with EBX in March last year.

In return, Mubadala was granted a 5.6 per cent stake in Mr Batista's offshore holding companies, including Centennial Asset Brazilian Equity Fund, which along with another fund, Centennial Asset Mining Fund, held 58.9 per cent of OGX as of July 10, according to Thomson Reuters data.

Brian Lott, a spokesman for Mubadala, said on Thursday: "Mubadala remains in close discussions with EBX and a number of interested parties as EBX continues to restructure its businesses. We believe many EBX assets have significant potential value for Mubadala and other investors."

He declined to comment on a Bloomberg report that Mubadala had joined the Amsterdam-based commodities trader Trafigura Beheer to bid for Mr Batista's iron ore unit, MMX Mineracao e Metalicos. The news wire cited three people with direct knowledge of the matter.

As Brazil's fourth-largest iron-ore operator, MMX holds two producing assets in Brazil and is building the Sudeste port in Rio de Janeiro, from where it hopes to ship steelmaking material to Asia.

In July, EBX renegotiated $2.3bn in debts to Mubadala, reportedly the Brazilian company's single biggest creditor.

"The agreement we signed in July with EBX gives Mubadala improved protection for the remaining portion of its investment against certain assets," Mr Lott said. When Mubadala announced its initial investment in EBX in March last year, Khaldoon Khalifa Al Mubarak, the chief executive and managing director, cited Brazil's strong economic fundamentals and attractive investment prospects over the medium to long term as reasons for the deal.

It would be heartened, therefore, by news that the country's economy grew by 3.3 per cent year-on-year in the second quarter, higher than originally forecast.

But the value Mubadala gleans may still ride on the restructuring of Mr Batista's tentacle of business units in the coming months.

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Name: HyperSpace
 
Started: 2020
 
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
 
Based: Dubai, UAE
 
Sector: Entertainment 
 
Number of staff: 210 
 
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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