October 15, 2013 10:40 pm

Batista group in $1bn port deal to avert collapse

Batista, CEO of EBX Group, gestures next to Brazil's President Rousseff during a ceremony in celebration of the start of oil production of OGX in Rio de Janeiro©Reuters

Eike Batista with Dilma Rousseff, Brazil's president

Eike Batista has struck a near-$1bn deal to stave off the collapse of his business empire, ceding control of his prized iron ore port to the Dutch trading house Trafigura and an Abu Dhabi sovereign wealth fund.

Trafigura and investment fund Mubadala Development Company agreed to pay $400m for a 65 per cent stake in Porto Sudeste, an iron ore port under construction by Mr Batista’s mining company MMX in Rio de Janeiro state, Brazil.

Under the terms of the deal, Trafigura and Mubadala will also assume R$1.3bn ($596m) of debt taken on by MMX to build the port.

Shares in MMX jumped as much as 18 per cent on Tuesday – their biggest intraday gain in three months.

The agreement with Trafigura and Mubadala, Mr Batista’s biggest single creditor, comes as a lifeline for Brazil’s former richest man, who is struggling to restructure his oil and mining empire before it runs out of cash.

Mr Batista’s oil company OGX said it would miss a $44.5m bond interest payment this month and might be forced to file for bankruptcy protection within weeks, analysts said.

The deal marks Trafigura’s first big investment in Brazil and adds to its growing iron ore business.

Commodity traders are rapidly expanding from their traditional “middleman” business model of buying and selling raw materials, where margins are razor thin, to investing in production, refining and logistics.

“Iron ore trading is an important growth area for us and the investment . . . is a vital support to this activity,” said Jeremy Weir, a Trafigura board member.

The Dutch-based trading house started actively trading iron ore in 2009. The MMX port and iron ore terminal will be run by Trafigura’s Impala subsidiary, which houses its logistics and storage operations.

Nicolas Konialidis, Impala’s chief executive, said the port, which will be able to ship up to 50m metric tonnes of the steelmaking ingredient a year, would provide miners with a greater ability to market their resources outside Brazil.

The port will provide a route to Asia and Europe for miners based in landlocked Minas Gerais, Brazil’s largest mining state.

Iron ore trading is an important growth area for us and the investment . . . is a vital support to this activity,” said Jeremy Weir, a Trafigura board member.

- Jeremy Weir, Trafigura

MMX did not disclose the value of the individual investments by Trafigura and Mubadala.

MMX will retain the remaining 35 per cent stake in the port unit, which will be renamed PortCo, and will have the option to buy an additional 7.5 per cent when the deal closes.

However, the agreement is still contingent on regulatory approval as well as the restructuring of the debt held by MMX’s port business.

Trafigura and Mubadala must also secure a $100m finance facility for MMX for the deal to go through.

The asset sale comes as Mr Batista is also negotiating with creditors over OSX, the shipping company he created to provide platforms for OGX. Local media reported on Tuesday that OSX had reached an agreement with Brazil’s development bank BNDES to roll over a loan of more than R$500m for 30 days. The company is also negotiating with state-run Caixa Econômica to refinance a R$400m loan due on Saturday.

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