OSX Brasil Files for Bankruptcy

FPSO OSX-3 pictured at her May 31, 2013 naming ceremony in Singapore. Photo credit: OSX

By Sabrina Lorenzi

RIO DE JANEIRO, Nov 11 (Reuters) – Brazilian shipbuilder OSX Brasil SA filed for bankruptcy protection on Monday, becoming the second company controlled by former billionaire Eike Batista to seek court protection from creditors in just over a week.

The move, confirmed by the company shortly after a source told Reuters the filing was underway, follows a decision by the OSX board on Friday to pursue bankruptcy proceedings.

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The petition was made to the same court in Rio de Janeiro where Batista’s oil company OGX Petróleo e Gas Participações SA sought protection from creditors on Oct. 30. That case, citing 11.2 billion reais in debt ($4.8 billion), was Latin America’s largest bankruptcy filing.

OGX is the shipbuilder’s only big customer and filing the OSX petition at the same court in effect asks the judge to consider the two cases together.

It remains unclear how much of OSX’s 5.34 billion reais ($2.29 billion) debt the company wants to restructure.

In a securities filing on Monday, parent company OSX said it filed for protection along with two of its subsidiaries: OSX Construção Naval S.A. and OSX Serviços Operacionais Ltda.

The filing left a third unit out of the petition: OSX Leasing, which owns three platforms that are leased for oil exploration purposes. In the filing, OSX said it had rescinded contracts it had with OGX for two of the platforms.

Last week, OSX’s $500 million in secured dollar-denominated bonds rallied on speculation that keeping the leasing unit out of bankruptcy proceedings would give OSX more flexibility with the unit’s assets. OSX could, for instance, sell the platforms to generate revenues that could then be used in the restructuring.

The OSX petition continues the dismantling of a sprawling energy, minerals and logistics empire that Batista, a Rio-based entrepreneur who was once the seventh richest man in the world, created over the past decade.

Before the OGX and OSX filings, Batista had already agreed to sell stakes and key assets of the other four publicly traded companies in his ailing EBX conglomerate, which he built over the past decade by leveraging rising worldwide demand for commodities and soaring investor interest in Brazil at the time.

Over the past year, though, the empire collapsed under a mountain of debt after missing production and profit targets. The missed targets caused investors to sour on Batista, quickly diminishing the value of his empire and crippling his companies’ ability to finance operations and pay debt.

INTERDEPENDENCE

Part of his group’s ills stemmed from the companies’ interdependence. OSX, for instance, depends for all its revenue on OGX, to which it leases oil production ships.

While Batista had promised the companies would generate significant business for each other, instead their problems spread from one to the others. Indeed, once OGX hit hard times it was almost certain that OSX would too.

Last week, the company appeared to get a lifeline when two banks agreed to refinance a 400 million real loan 17 days after it had come due. State-run Caixa Econômica Federal and Banco Santander Brasil SA, the lender that provided a guarantee to make the loan feasible, agreed to roll over the credit for an additional 12 months.

But it wasn’t enough.

Last Friday, OSX in a regulatory filing said its board had decided to pursue bankruptcy proceedings. The filing added that OSX had fired its chief executive and named Angra Partners, a Brazilian financial advisory firm that is also advising OGX, to manage its restructuring.

It is now up to the court, which has not yet agreed to the OGX petition, to accept the OSX petition as well. On Monday, the public prosecutor’s office in Rio said it had petitioned the court to exclude two of OGX’s foreign units, neither of which has assets or creditors in Brazil, from the local proceedings.

The court has until Friday to decide whether it will accept the OGX petition. The OSX request, if also accepted, would then play out as part of the OGX case.

If the court approves the OGX bankruptcy request, the company will have 60 days to present a restructuring plan. OGX creditors will then have 30 days to endorse or reject the plan, though legal experts warn the proceedings could drag on for much longer than that.

OSX is 10 percent owned by South Korea’s Hyundai Heavy Industry.

In addition to Caixa and Santander, the company’s creditors include Brazil’s national development bank, known as the BNDES. In a statement Friday, the bank said it granted OSX a $228 million bridge loan, but added that the loan is backed by bank guarantees and presents no risk to the BNDES.

Stock market regulators on Monday suspended trading in OSX shares until its bankruptcy filing is official.

© 2013 Thomson Reuters. All rights reserved.

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