Beleaguered Brazilian exploration firm OGX is set to ask bondholders for more cash in a bid to avoid having to file for bankruptcy protection.
The company, which named three new directors this week, is running out of cash to develop its oil interests and exercised a put-option against main shareholder Eike Batista this week for $1billion.
But the Brazilian business magnate – once ranked the seventh richest man in the world – is disputing the terms of the option and plans to take the matter to an arbitration court if an agreement is not reached within 60 days.
Batista’s fortunes have dramatically waned in the last year, with OGX’s financial troubles coming alongside sell-offs of power firm MPX and logistics group LGX. Forbes recently pegged his wealth at less than $900m, down from $30billion 18 months ago.
Negotiations with holders of $3.6 billion of dollar bonds are going “very well,” chief executive Luiz Carneiro told reporters in Rio de Janeiro late yesterday, predicting OGX will emerge healthy and capitalized.
While filing for bankruptcy protection is a possibility, OGX hopes to avoid the proceedings in a restructuring that may see Batista cede control of his flagship company, Carneiro said. Bondholders last month hired Rothschild to advise on restructuring while OGX is working with Blackstone Group LP.
“A financial restructuring, that’s the path,” Carneiro said after a shareholders meeting at company’s headquarters in Rio. “In the end, we will have a healthy company, with no debt, capitalized, with enormous potential.”
OGX is asking a group of investors for at least $250 million in fresh capital as part of a restructuring of its bonds, two people with direct knowledge of the matter told Bloomberg News earlier this month.
“It’s about trying to show that it’s better for them to put on so they have a better return than letting the company go broke,” said Caneiro. “Bondholders can accept or not.”
Batista, 56, is selling pieces of his commodities and logistics empire as the companies run out of cash and debt swells amid an investor confidence crisis triggered after output at OGX’s first project collapsed.
Julio Klein, Pedro Borba, and Luiz Guimarães, who was recently named OGX president, joined the board this week in a tense vote.
OGX has 30 oil and gas concessions in Brazil that may be revoked if it files for bankruptcy protection. It has already abandoned areas off Rio’s coast that it previously declared commercial because the geology is more compartmentalized and has less pressure than the company anticipated, hindering the flow of oil.
OGX may halt its first offshore project, Tubarao Azul, next year because of bad economics.
The company has also approached Malaysian giant Petronas to begin payments on its 40% prchase of the Tubarao Martelo field before restructuring is completed.
“Petronas is waiting to see the restructuring’s result,” Carneiro said. “We are trying to convince them to put it earlier.
“We have some fronts to be able to get funds. The Eike put, closing the deal with Petronas so they provide money, a financial restructuring or bankruptcy protection.”