Eike's departure from MPX marks the beginning of the collapse.

By Guillermo Parra-Bernal and Jeb Blount
Reuters Eike Batista's EBX group, once an ambitious industrial conglomerate, began to crumble on Thursday, becoming the latest victim of the decade-long commodities boom to suffer an abrupt halt.
Eike, the founder and driving force behind the oil, energy, ports, shipping, and mining group, who named all his companies with an "X" to symbolize "wealth multiplication," has stepped down as chairman of the board of MPX, the group's most promising energy company.

The electricity generation company will also be renamed by October to position itself outside the EBX group, MPX executives said in a conference call on Thursday.

The move removes Eike from MPX at a time when the value of his empire, once estimated at around $60 billion, is disintegrating. Once considered the richest man in Brazil, Eike's personal stake in EBX has decreased by more than $20 billion in the last year, while promises of oil wells, ports, power plants and ships have failed to materialize.

Most of the shares of EBX companies are now almost worthless, the debt is trading at levels that suggest default, and leading investors are questioning Eike's promise to invest more. With Brazil's struggling economy, a weak currency, and Chinese demand—the driving force behind Brazil's boom over the last decade—waning, investors have little appetite for new investments.

"Eike's predicament is like Brazil's, a sign that we can no longer ignore Brazil's predicament," said Alexandre Barros, founder of Early Warning, a political risk consultancy based in Brasília. "Eike got investors excited about Brazil's potential, which was real, but like Brazil, Eike failed to deliver."

Batista's departure comes after MPX canceled a share offering worth approximately 1,2 billion reais.

The offer became unsustainable due to deteriorating market conditions, the company said in a document filed with the Securities and Exchange Commission (CVM). The recommendation to cancel the public offering came from BTG Pactual bank, which has been acting as financial advisor to Eike Batista's EBX group.

Instead, MPX will promote a capital increase of 800 million reais with shares priced at 6,45 reais per share, in a private transaction in which Eike, a partner of the German company E.ON, and BTG Pactual may participate.

"This is very good for MPX," said Ricardo Correa, an energy sector analyst at Ativa Corretora. "MPX is the best company in the group, and they are working quickly to isolate the company and separate it from the risk associated with Eike's EBX group," he said.

Shares of MPX, which had fallen 42 percent this year, were up more than 10 percent at 16:55 p.m. on Thursday on the Bovespa stock exchange.

According to Adriano Pires, director of the Brazilian Infrastructure Center (Cbie), Eike's departure from MPX and the gains in shares of several EBX group companies on Thursday show that investors believe the breakup of EBX may be the best way to protect their investments.

"They have to do something, and do it fast, to isolate the different parts of the group from the backlash against Eike, so that Eike and EBX can have room to stop the deterioration and restructure the group," said Pires.

E.ON ASSUMES

According to the previous sales plan, the shares would be sold at 10 reais each, as part of E.ON's purchase of a stake in MPX in March for 1 billion dollars. Now, under the new plan, E.ON has agreed to buy up to 367 million reais worth of shares in the capital increase, with BTG Pactual guaranteeing the transaction.

E.ON owns 36 percent of MPX, a stake that could increase to as much as 38 percent in a private sale, MPX executives said.

Eike will leave the board of directors, but will still hold 29 percent of MPX and joint control with the German company E.ON through a shareholders' agreement, MPX said in the conference call, adding that there is no guarantee that the businessman will buy new shares in the capital increase.

Eike's stake will be reduced to 24 percent if he does not buy any MPX shares in the capital increase, according to the company. Representatives at EBX did not immediately respond to comments requested by phone and email.

"We see a wide range of opportunities as a result of this capitalization," said MPX CEO Eduardo Karrer on Thursday's conference call. "This is part of MPX's evolution process as an independent entity."

NEED FOR RESOURCES

The proceeds from the capital increase will be used to "strengthen the company's balance sheet and prepare it for growth." According to Karrer, the company plans to participate in several government auctions for the sale of thermal and wind energy throughout the year.

MPX needs new capital to finance approximately 600 million reais in power generation plants that will transform it into a fully operational company.

The company's capital increase should be completed within 40 days, company executives said.

Jorgen Kildahl, a board member representing E.ON, will replace Eike, who founded MPX in 2001, an E.ON spokesperson said. Eike's decision to leave the company was "personal," MPX representatives said.

(With additional reporting by Alonso Soto and Christoph Steitz)