Larger than life Eike Batista is betting big on industry to catapult him to the top of the world’s richest businessmen. Can he do it?
Eike Batista sits atop one of the world's most expansive
industrial conglomerates, ranging from oil and mining to recreation and beauty
care. Already the richest person in Brazil, he wants to be the richest in the
His country has not seen industrial ambition on this scale
since the 19th century, when a banker called Irineu Evangelista de Sousa built
the first railroad, helped put steamships on the Amazon and linked South
America to Europe with an undersea telegraph.
Since then, Brazil has evolved from a slaveholding backwater
addicted to foreign capital into an emerging global power. And yet in skeptical
capital markets, Brazil is still trying to prove itself.
And so is Batista.
The main companies in EBX, his conglomerate, are in start-up
mode and most are posting operating losses. His flagship oil company has pumped
no crude and his enormous port projects have loaded no cargo.
His fortunes depend on Brazil's continued economic success,
and his huge bets on oil and commodities could prove highly vulnerable if world
prices fall. The time has come, his critics say, for Batista to deliver results
to justify his aggressive promises and the sky-high valuations of his
The risks have already become evident. In April, Batista's
oil company, OGX, presented a study showing its potential oil resources jumped
almost 60 percent to 10.8 billion barrels. But, on the next trading day, its
shares fell by as much as 17 percent.
That was because the new number came with a large footnote:
"Potential resources" are much less likely to be produced than
"reserves." In the eyes of many investors, the study raised doubts
over whether OGX has as much oil as it suggested.
Batista dismisses as absurd any doubts about future
successes of OGX and his other companies. In a recent interview, brimming with
charm and wearing an infectious grin, he promised to fill his shareholders'
pockets and, at the same time, to transform Brazil into a developed nation.
"My companies are going to be billion-dollar EBITDA
machines that will pump out profits for my shareholders and dividends for my
children and grandchildren," he said, using the term for earnings before
interest, taxes, depreciation and amortization.
Some investors are skeptical. Nick Robinson of Aberdeen
Asset Management, who helps manage around $10bn in Brazilian equity
investments, says his fund has no money in the EBX group.
"I think there are some good companies there, but
they're a bit too early-phase for us at the moment," said Robinson.
"These are projects that require a lot of cap-ex, a lot of cash needs to
be invested. There's a risk that those investments won't generate good
returns," he said.
Others are standing by Batista, who was ranked the world's
eighth-wealthiest person by Forbes in 2011. Among the first major outside
investors in his companies was the Ontario Teachers' Pension Plan, which had
$108bn under management at the end of 2010.
The plan's annual report for 2009 listed OGX and Batista's
logistics company, LLX, as key drivers in its non-Canadian equities portfolio.
OGX shares jumped 225 percent that year, while LLX soared 560 percent.
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But since the start of this year, the combined value of the
five listed companies in Batista's conglomerate has fallen by $17.5bn. OGX's
shares are down 32 percent, compared with an 18 percent drop in the Bovespa, Brazil's
benchmark stock index.
Wayne Kozun, senior vice president of public equities at the
Ontario Teachers' Pension Plan, said he still has faith in the EBX group's
capacity to deliver.
"It's not just Eike who's running these things, he has
a large team. He's hired people that have expertise in the area," Kozun
said. "Yes, we have confidence in them."
As well as oil company OGX and logistics company LLX,
Batista's conglomerate also includes mining company MMX, energy and electricity
company MPX and shipbuilder OSX. Batista says the "X" at the end of
each name represents multiplication of wealth.
The conglomerate has set cash-flow targets of $1.1bn for
2012 and $17.4bn for 2015. Reaching them may well depend on the performance of
oil company OGX, perhaps Batista's riskiest venture.
Batista created OGX in 2007, making big bets on fields off
Brazil's coast. Those bets began to pay off in 2009, when OGX announced
multiple discoveries. OGX's stock price shot up and, without producing a single
drop of oil, its valuation at times rivaled that of Devon Energy, one of the
largest independent oil and gas producers in the United States.
OGX even floated a $2.6bn bond at competitive interest
rates- unheard of for an oil company
with no production.
It plans to pump 1.4 million barrels of oil and gas
equivalent by 2019.
"It will be a world record from first drilling to first
production of offshore oil and gas," Batista said in the interview in
September. "We're going to be creating some benchmarks in the
Since then, OGX has delayed its start date for production to
January from December.
Batista says OGX shows what Brazil needs - someone bold
enough to take risks in a nation where industrialists live comfortably off the
"teat" of government contracts and guaranteed returns.
"This is Brazil. There's no risk-taking," he said.
"The risk-taking in Brazil was done by state-owned companies."
He has a point. The two largest companies on Brazil's stock
exchange are Petrobras, an oil company known for its advanced drilling
technology but also for suffering heavy government interference, and world No.
2 mining company Vale, which removed its chief executive this year under
Nearly half of the weighting of the Bovespa comes from
companies that are either currently or formerly state-controlled, ranging from
utilities and telecom companies to steel mills and jet maker Embraer. State
development bank BNDES is still the principal source of medium- and long-term
financing for Brazilian companies.
But while Batista criticizes others for living off the
government, he is no free-market hawk.
For example, he has backed government efforts to require
offshore drilling equipment be built at home - even if the cost is higher - to
spur local industry and create jobs. He opened his own shipbuilding business to
provide rigs and platforms for OGX, which he insists will create value over
time even if costs are higher at first.
"He believes in Brazil," said Senator Delcidio
Amaral of the ruling Workers' Party and a former Petrobras executive.
"He's not a conventional businessman, he's brash, he's insolent - this is
why so many people criticize him."
Batista is convinced he can help Brazil strengthen in
crucial areas - expanding clogged ports that are slowing economic growth,
lowering logistics costs by using sea freight instead of roads, spurring
private entrepreneurship that is independent of the state - while still making
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His Port of Acu project, being built by LLX in Rio de
Janeiro state, will help mining companies expand by giving them a way to ship
"trapped" minerals that currently have no way to market.
That project, says Batista, shows the "brutal
efficiency" that he embodies: Iron ore produced by MMX will be turned into
steel at a mill to be housed at the port complex, using power generated by MPX.
That steel will then be used by shipbuilder OSX to build rigs and offshore
platforms for oil company OGX.
In October alone, EBX announced deals to build a fertilizer
plant and an oil pipe construction facility in an industrial park linked to the
Like many others of his generation, Batista, 55, was raised
not to believe in Brazil, which suffered years of military dictatorship,
kleptocratic state governments, and hyperinflation in the 1980s. His own father
suffered under the dictatorship and was suspected of being a communist because
he spoke Russian.
"I think it wasn't until 2008 that people really began
to regret having sold assets in Brazil," he said.
Today, Batista is a larger-than-life figure in Brazil and a
mainstay in the business and society pages. He was married to former carnival
queen and Playboy centerfold Luma de Oliveira, whom he divorced in 2004. They
have two sons.
His holdings include a touring yacht called Pink Fleet, a
Chinese restaurant and a high-end hair and skin clinic called BEAUX headed by his
girlfriend, Flavia Sampaio.
And his public persona is not that of the average CEO. On
Twitter, he says things like, "Have a good and beautiful night my friends
in Twitterland! Bye bye. Eike." Or, "Whoever loses their simplicity
loses the essence of life!"
When reporters at an oil and gas conference pressed him last
year for details about OGX's drilling plans, Batista spent most of a press
conference talking about his idea for an electric car factory. Asked how much
he would invest in it, Batista, in an eye-catching pair of cowboy boots, cocked
his head and said, "Keep asking me questions, I'm still thinking about
it." Almost an hour later he said, "a billion." He meant
dollars, not Brazilian reais.
His rise began in the early 1980s, when tens of thousands of
Brazilians flocked to the heart of the Amazon to work informal mines in
conditions not much advanced from the California Gold Rush 130 years earlier.
Back from Germany, where he had studied metallurgical
engineering, he borrowed $500,000 from two Rio de Janeiro jewelers and traded
gold from the isolated jungle mines. Brazil's economy was floundering under
military dictatorship and inflation was going through the roof. Gold was in
Trekking through malarial mining camps, Batista says he
traded $60 million, kept 10 percent for himself, and made a fortune of $6
million by age 22.
He used the proceeds to buy and mechanize his own mine, an
experience he says taught him to find productive assets overlooked by others.
"In the middle of the jungle it's a military operation.
You have to build your own city, people need to eat, you have to produce your
own power," he said. "I only survived it because the mine was so rich
that it was totally idiot-proof."
"Idiot-proof," used to describe a project with
margins so high that it is profitable no matter what, is a catch-phrase that
still comes up as he discusses his current businesses.
Critics say Batista isn't completely self-made. His father,
Eliezer Batista, was a former mines minister and president of Companhia Vale do
Rio Doce, the formerly state-owned mining company now called Vale. He denies
his father's connections gave him a leg-up.
By the age of 29, the younger Batista had risen to become a
director at Canadian gold miner TVX, traveling the globe in search of
overlooked assets. He came into conflict with partners over projects in Greece
and Russia, which led to the decline of TVX.
"His business history before his current ventures is a
bit questionable," said geologist and former mine developer Rik Visagie.
He said Batista used data that Visagie and his partners had gathered on the
Kassandra gold mine in Greece and then pushed them off the project. A Canadian
court awarded Visagie control of a stake in the mine.
"He decided he was going to teach everyone how to mine,
so he brought in a whole lot of Chileans to work in Greece," said Visagie,
who later became an analyst with Octagon Capital in Toronto. "That doesn't
work well at all."
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Battered by legal wrangling and a crash in the price of
gold, TVX's stock tumbled and the company was ultimately bought out by Canada's
Despite their dispute, Visagie still has respect for Batista's
"Eike put together the deals for TVX, and those assets
today are probably still the best Kinross has," he said.
Batista, who blames the problems on the Greek government for
refusing to grant an environmental license, returned to Brazil. "I
traveled around the world and I realized that Brazil is the best place in the
world to invest," he said.
Of Batista's main companies, iron ore miner MMX, which he
set up in 2005, is the most operationally advanced. It posted a relatively
modest profit of around $57m in the second quarter of this year and swung to a
loss of $139 million in the third quarter due to a decline in Brazil's
Its furious pace of dealmaking is an example of Batista's
unusual style, which he calls "capitalismo turbinado," or
In 2008, he sold stakes in two of MMX's three mines to Anglo
American for $5.5bn, considerably more than what analysts said they were worth,
in what may have been the deal of his life.
In early 2010, he sold a 22 percent stake in MMX to China's
Wuhan Iron and Steel for $400m and South Korea's SK Networks bought $700m worth
of MMX shares.
Skeptics note that the largest gains for MMX shareholders
have come from deals rather than from the production of iron ore, raising
questions about whether he can execute his projects. Investors in his other
companies are still waiting for his ambitious plans to turn a profit.
Batista shrugs off the global economic headwinds, Brazil's
own slowdown and falling share prices.
"Our shares? We don't even look at them. We don't need
to look at them. Our financial discipline allows us to laugh at what's going
on," he said.
And he has no doubt he'll climb to the top of the Forbes list
of the world's wealthiest.
"It's inevitable," he said.