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Friday, 18 April 2014

The pact in Pactual

Which banker's services are worth $1 billion?

Which banker’s services are worth $1 billion? Apparently, those of Andre Esteves are. When fellow Brazilian billionaire Eike Batista said he was seeking financial and strategic advice from the BTG Pactual boss for his oil empire, investors initially lifted the market value of the six listed and intertwined arms by $1.3 billion. The expectations may be too high.

Esteves, a trading whiz, has forged a formidable reputation for value enhancement. After agreeing to sell his bank to UBS in 2006 for about $3.1 billion, he bought it back from the Swiss group a few years later for less. A year ago, he took BTG Pactual public at a value of over $14 billion.

Reviving Batista’s struggling EBX group will put Esteves’ skills to a big test. Last week’s gains, which followed some $28 billion of market value destruction in a year, occurred without investors even knowing exactly what Esteves will be doing for Batista beyond providing access to an unspecified amount of credit and co-presiding over a weekly strategy meeting.

Management shakeups have been the game plan so far. Batista has axed five chief executives in less than a year. And at OGX, the flagship oil company where production targets have been slashed, the chief financial officer and exploration boss were sacked, too.

Batista, who has lost the title of Brazil’s richest man, obviously needs more ideas. Output at OGX is just a quarter of what had been expected. Batista also is facing delays and cost overruns with port projects and shipbuilding. The country’s fortunes haven’t helped. Brazil’s GDP growth rate slumped from 7.5 percent in 2010 to 0.9 percent in 2012.

Investors may be anticipating fresh capital or additional funding. BTG Pactual is providing EBX with a $1 billion line of credit, according to Bloomberg. Even so, it could be a challenge, even for a proven salesman like Esteves, to raise new money given recent experiences. Mubadala, the Abu Dhabi state investment fund, bought a $2 billion stake in the unlisted EBX holding company a year ago.

The X in Batista’s corporate names is supposed to represent multiplication of wealth. It’s just not clear yet given all the operational and cash needs throughout EBX that even Esteves can make the math work.

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Context News

The shares of companies controlled by Brazilian billionaire Eike Batista’s Grupo EBX soared on March 7 after the company signed a deal to work with BTG Pactual on a strategic and financial management committee for the group.

An agreement between Batista and fellow billionaire Esteves, the Brazilian who controls BTG Pactual, helped lift the market value of EBX companies by about 2.6 billion reais ($1.33 billion) in late afternoon trading, according to Thomson Reuters calculations. By March 8, the gains had declined to $954 million.

Under the accord, BTG Pactual will provide EBX with access to credit and management services.

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