Brazil’s economic boom slows, smashing a billionaire’s dreams
When Brazilian billionaire Eike Batista appeared on the Charlie Rose show in 2010, he and his country were on a roll. Peter Lattman and Simon Romero write.world Updated: Jun 25, 2013 00:52 IST
When Brazilian billionaire Eike Batista appeared on the Charlie Rose show in 2010, he and his country were on a roll.
Brazil’s economy, driven by a worldwide commodity boom, grew a blistering 7.5% that year. And Batista’s prodigious holdings — spanning oil, mining, shipping and real estate — were soaring in value. In the interview, Batista was asked how rich he would become over the next decade.
“A hundred billion dollars,” he said, an amount that would most likely have made him the wealthiest person in the world.
Today, with the Brazilian stock market and the value of its currency falling as mass demonstrations hobble the country, Batista’s billions are evaporating.
From a peak of $34.5 billion in March 2012, his wealth has dropped to an estimated $4.8 billion, according to the Bloomberg Billionaires Index.
His lenders are growing anxious, and there are concerns that he might have to reorganise — and possibly lose control of — his dwindling empire.
The rise and fall of the charismatic industrialist mirrors Brazil’s sudden reversal of fortune. After years of economic expansion, the South American nation has begun to sputter.
Inflation has become a major concern. Brazil’s stock market index has declined about 23% this year, the most of any large country. This month, Standard & Poor’s cut its outlook on Brazil’s credit rating to negative, citing slowing growth and weakening finances.
And then there are the street protests spreading across Brazil, stunning the country’s political and business establishment. With outbursts of violence, the protests, initially caused by an increase in bus fares, have grown into a broad questioning of the government’s priorities.
The protests shook an array of cities over the weekend, with somewhat less intensity than in previous days, and organisers promised a new round of demonstrations in the days ahead.
Batista’s conglomerate, as an emblem of the nation’s industrial mettle, ranked among the government priorities now being questioned, receiving more than $4 billion in loans and investments from the national development bank.
While protesters have not focused much ire on Brazil’s economic elite, there has been a building resentment toward the fact that governing structures subject to corruption in Brazil remained largely the same throughout the long economic boom, as authorities channeled huge resources of the state to projects controlled by tycoons.
The protesters have directed much of their anger toward political leaders, some of whom are close to Batista, like the governor of Rio de Janeiro, Sérgio Cabral, to whom Batista occasionally lent his private jet and who found demonstrators camped in front his home.
“Eike Batista assembled an empire thanks to colossal financing from the Brazilian government,” said Carlos Lessa, an economist and former president of Brazil’s national development bank. “But his explosion of wealth and prominence on the global stage came with risks, as the government itself and investors are discovering now.”
Batista built his fortune by selling investors on the potential of Brazil, forming companies that would benefit from the country’s rich oil fields, vast mining resources and fast-growing middle class.
But over the last year, investors in Batista’s six publicly traded businesses — none of which are profitable — have unloaded their shares amid disappointing projections, missed deadlines and a heavy debt load.
“He bundled wind and sold it,” said Miriam Leitão, an economic historian and columnist for O Globo, a leading Brazilian newspaper. “The euphoria fooled a lot of people.”
Now Batista is shedding assets and raising cash. In April, he dumped a large stake in his electric power company. He has put a private jet, a $26 million Embraer Legacy 600, up for sale.
He is seeking a partner for Rio de Janeiro’s landmark Hotel Glória that he bought in 2008, a project that was supposed to be ready for the 2014 soccer World Cup but is mired in delays.
On Sunday, the newspaper Folha de São Paulo reported that Batista’s offshore construction company, OSX, had defaulted on a payment of more than $200 million to Acciona, a Spanish construction company.
A spokeswoman for Batista disputed the report, contending that OSX has been in negotiations with Acciona over “obligations.”
In a statement, Batista rejected speculation that his business empire could be heading toward a collapse. Referring to his recent sale of stock in his own flagship oil company, OGX, Batista called the move a “minimal timely adjustment” related to the “reduction of the cost of debt among creditors.” While the move eroded confidence by investors, he emphasized that he had no plans to do so again.
Aside from his business woes, Batista has also come under scrutiny because of his family. In March 2012, his son, Thor Batista, was driving his father’s McLaren when he struck a bicyclist and killed him instantly.
This month, a Brazilian jury convicted Batista, 21, of vehicular manslaughter. He avoided prison, but was banned from driving for two years and fined about $500,000. His lawyers said they would appeal.