How Brazilian billionaire Eike Batista lost $35.4 billion in one year
Monday, November 4, 2013/
Could this be the largest fall from grace in history?
In monetary terms, I’m unable to think of a precedent. Nathan Tinkler lost $1 billion. Eike Batista lost far, far more.
Last week, the flagship company of the former Brazilian billionaire, at one time the 8th richest man in the world, filed for bankruptcy. Earlier, sitting pretty on a $35 billion valuation, Batista had declared he would be the world’s richest man by 2015.
He wasn’t the only one who believed it. A year and a half ago, Brazilian president Dilma Rousseff declared Batista “the pride of Brazil when it comes to a businessman in the private sector”.
“Eike is our standard, our expectation,” she said at a company briefing.
Batista’s fall leaves a lot of people with egg on their face, not least the world’s supposedly savviest financiers, many of whom poured billions into his companies.
I wrote about Batista earlier this year, when he’d lost just $25 billion. Then, it looked like his bold prediction of being the richest person in the world wouldn’t come to pass, at least, not by 2015. But bankruptcy didn’t look like the most likely outcome either.
In just 12 months he’s lost $34.5 billion. Bloomberg is pinning his fortune at just a few dozen million now.
How’d it happen?
The short answer is he never had most of the money in the first place. What he did have was the trust of global markets, and sky-high expectations for his flagship oil company, OGX. He lost the first when the second didn’t pan out.
OGX’s oil fields turned out to be far less lucrative than expected.
Batista’s wealth was built on the vastly inflated expectations of economic wealth arising from his flagship oil company, OGX. Since 2010, OGX has missed targets for production output, and estimates of its reserves have shrunk. The company was highly leveraged to begin with. It had to make money to pay its debts. Debt holders around the world are trying to recoup what they can.
Batista blames his management team for ‘spruiking’ the investment beyond what was reasonable prior to exploration. That seems disingenuous coming from the spruiker-in-chief.
In the past year, Batista has fired many of his key executives, sold his planes and helicopters, and on Thursday, OGX filed for bankruptcy.
His empire is in ruins. But if you had to simplify the flamboyant entrepreneur to one characteristic, it would be self-confidence. And Batista seems far from humbled.
In a September 15 interview with the Wall Street Journal, Batista absolved himself of blame for his company’s failures (“I don’t have the special knowledge. You wouldn’t ask the owner of a hospital to operate on your kidney), and said he would be back.
But Batista never got rich alone. It’s hard to see the world’s financiers throwing him another credit line.