Buying time: A closer look at Mubadala’s latest Brazilian investment

Buying time: A closer look at Mubadala’s latest Brazilian investment

Mubadala's investment can be allocated at will by Batista. And the $46 billion fund has deep pockets that may be tapped again if additional financial support is necessary.

March 27, 2012 1:39 by kippreport

Eike Batista may be Brazil’s richest man, but he runs a cash-hungry empire. His sprawling EBX Group, which spans oil, mining, rig-building and ports, is still in its infancy. The $2 billion infusion from Abu Dhabi’s Mubadala development fund will help buy time for Batista to make good on his promise.

The billionaire is a fundraising maestro. Instead of shrewdly tapping public markets, as he has done on several occasions, this time he sold an interest in his investment company. The 5.6 percent share bought by Mubadala values Batista’s personal stake at almost $36 billion – over the $30 billion at which Forbes magazine recently pegged his fortune.

The step may have been necessary. EBX soaks up cash. OGX Batista’s oil and gas explorer, is the jewel with a $29 billion market value. Yet while it has been breaking speed records for taking crude discoveries to production, the firm only pumped its first barrel in January 2012. Extracting an estimated 10.8 billion barrels of oil won’t come cheaply. The firm bled about $400 million of cash last year.

Petroleum services firm OSX, valued at $2.6 billion, is also still at least a year away from making its first rig. Iron ore miner MMX only has capacity of about 11 million tonnes a year. Rival Vale can produce nearly 30 times as much. And there’s also Batista’s gamut of real estate to entertainment ventures to consider.

Mubadala’s investment can be allocated at will by Batista. And the $46 billion fund has deep pockets that may be tapped again if additional financial support is necessary. Its track record of loyalty and patience, including through the downturn, at the likes of General Electric and buyout firm Carlyle Group, will also be comforting to EBX.

Batista’s companies have generally done well since going public. OGX shares are up 32 percent since its 2008 launch while those of MMX have nearly quadrupled since mid-2006. Like other investors, Mubadala is putting its faith in Batista to turn his collection into a money-spinner. If he can, this collaboration could be just the start of a beautiful friendship.

By Christopher Swann and Una Galani