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From riches to rags, fallen tycoon Eike Batista tries a comeback

. Nov 27, 2020
Eike Batista Eike Batista at the Federal Police headquarters. Photo: Antonio Scorza/Shutterstock

When it comes to financial market tricksters, Brazil’s Eike Batista might be in a league of his own. Once featured in Forbes magazine as the world’s seventh-richest person, he suffered a stunning collapse — losing USD 35 billion in a single year after investors discovered that his commodities empire was little more than smoke and mirrors. In 2010, he infamously told Mexico’s Carlos Slim to “watch out,” as he was gunning for his position as the world’s wealthiest individual. A few years later, Mr. Batista was in jail and became the world’s first known “negative billionaire,” becoming buried in ten-figure debt.

Now, Eike Batista is trying to stage a comeback that would be even more astounding than his downfall.

On November 4,

the Supreme Court ratified a plea bargain deal agreed with the former mogul. In order to clean his slate with the justice system, Mr. Batista agreed to confess his <a href="https://www.infomoney.com.br/mercados/entenda-os-crimes-atribuidos-a-eike-que-o-levaram-de-volta-a-prisao/">crimes</a> (corruption and money laundering) in detail, name his accomplices, and <a href="https://www1.folha.uol.com.br/mercado/2020/11/ministra-rosa-weber-do-stf-homologa-delacao-premiada-de-eike-batista.shtml">pay BRL 800 million</a> (USD 149 million) in fines over the next four years. </p> <p>Off the hook in criminal terms, Mr. Batista also saw naval construction firm OSX and miner MMX —&nbsp;which once belonged to his now-defunct EBX group — makee headlines after posting double-digit rises in the stock market.</p> <p>Just over a month ago, MMX — of which the disgraced businessman holds a 52-percent stake — was being traded on the São Paulo stock exchange at below BRL 2 (USD 0.37) a share. Recently, however, it peaked at over BRL 36 and now sits at BRL 20.30 per share.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/4480940"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>The reasons for this impressive rally revolve around an iron ore mining complex in Corumbá, a city close to Brazil&#8217;s border with Bolivia. MMX went to court to overturn a deal to lease the highly-profitable mines to another company for just BRL 500,000 a month —&nbsp;MMX executives calculate the mine&#8217;s earnings before interest, taxes, depreciation and amortization at BRL 200 million per year, thus allowing the company to pay off its BRL 700 million debt in just three years.</p> <p>Meanwhile, the stock increases for OSX were fueled by news that its court-supervised recovery process has come to an end after seven years.</p> <h2>Redemption or recidivism?</h2> <p>Not everyone is won over by Eike Batista&#8217;s apparent redemption story, however. The Brazilian Securities Commission (CVM) has opened an investigation into the &#8220;atypical rise in value&#8221; of MMX and OSX shares after the Brazilian Association of Investors (Abradin) called foul play.</p> <p>A couple of decisions along the way caught people&#8217;s attention. First, a private equity fund previously run by a former OSX board member dumped its entire stake in the company (nearly 7 percent) as soon as prices went up. Another major OSX investor <a href="https://www1.folha.uol.com.br/mercado/2020/11/bolha-de-acoes-de-eike-beneficia-grandes-investidores.shtml">raised eyebrows</a> after profit-taking once shares peaked earlier this month.</p> <p>&#8220;There is little doubt that this is a case of inequitable practice,&#8221; said Abradin head Aurélio Valporto. &#8220;It is clear that [the investors in question] sold their shares because they knew they were artificially overvalued and sought after by inexperienced main street investors.&#8221;</p> <p>Data from Google Trends shows a surge in search engine queries related to Mr. Batista&#8217;s companies after favorable news items began <a href="https://g1.globo.com/economia/noticia/2020/10/23/cvm-vai-analisar-reclamacao-sobre-oscilacoes-de-papeis-da-mmx-e-osx-de-eike-batista.ghtml">appearing</a> in Brazil&#8217;s financial press. Multiple private equity fund managers and research houses denied an interview request, saying that seasoned investors simply do not follow these companies anymore.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/4481219"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>A trade analyst consulted by <strong>The Brazilian Report</strong> called the move &#8220;unnatural.&#8221;</p> <p>“The fundamentals of those companies were not good even before they went bankrupt. No recent piece of news changes that. If you ask me, this move is speculative. But it is hard to know where it came from.”</p> <p>This is not the first time Eike Batista has tried to pull a comeback, even after the CVM banned him from managing publicly-traded companies until 2026, after he was found guilty of insider trading last year. Many market players think the punishment is too lenient for the crime, pointing out that the collapse of Mr. Batista&#8217;s empire had systemic effects earlier in the decade.</p> <p>According to one analyst, Eike Batista is &#8220;radioactive&#8221; and will not be accepted by the market ever again.&nbsp;</p> <p>With investors already raging with the CVM’s wrist-slapping for governance scandals, local markets could certainly go without a return of Eike Batista.

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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