OGX Petroleo e Gas Participacoes filed papers in Brazilian bankruptcy court. The company is controlled by Eike Batista, who once seemed on track to become the richest man in the world. This Brazilian bankruptcy is the largest in Latin American history. Batista and his company were unable to come to an agreement with creditors for debts in excess of $5 Billion as valued in US dollars. The Brazilian bankruptcy is unlikely to have an immediate direct effect on Brazil as OGX Petroleo e Gas Participacoes is in its startup phase and not yet producing any petroleum products. However, the company is a caution to those holding foreign bonds or investing in foreign stocks. The major creditors for Batista’s company are American, PIMCA bond fund and Blackrock investment fund. The Brazilian bankruptcy comes as Batista’s net wealth has plummeted by $30 Billion in the last year with falling stock prices of his companies. After a decade of phenomenal growth, Brazil is in a three year economic slump belying expectations that Brazil as well as the rest of the BRICS nations would soon join the first ranks of world economies.
What Happened to Brazil?
China is what happened to Brazil and the recession is what happened to Brazil. Much of Brazilian economic growth came from exports or raw materials, largely to China. When the recession hit and reduced finished goods orders from North America and Europe China reduced orders for raw materials from across the world. As the Chinese look inward and concern themselves with growth and social stability, Brazil has fewer raw material orders to fill and its economy is in a slump. Even in this scenario Eike Batista is an outlier. The man is a consummate deal maker and promoter. He built upon early success and convinced big investors that his success was exponential. He has his hand in port facilities, mining interests, oil (the current bankruptcy filing), shipyards, and an entertainment company. All of these interests have been cut back and have lost share price. Although Batista has lost $30 Billion as stocks have fallen, his shareholders have lost as much or more. American investors are angry and want blood. So Batista has sought bankruptcy protection. He will likely get sixty days to come up with a reorganization and payment plan. His creditors will have a month to accept or reject. Someone in this Brazilian bankruptcy is going to lose a lot of money. Investing promised phenomenal growth has turned into a matter of investing in risky stocks. Considering that economies do come back it may be best to wait until Mr. Batista’s companies bottom out and then look to invest as in the Blood in the Streets scenario of Mr. Rothschild so long ago.
Investing Tips Regarding the Brazilian Bankruptcy
Timing can be everything in situations such as the Brazilian bankruptcy of OGX Petroleo e Gas Participacoes. The stock trades as an ADR for around six cents a share and was $2.35 a share a year ago. Before the 2008 market crash the stock sold for over $200 a share. That fact may make those who invest in penny stocks perk up and consider a low cost long term investment.