A Bailout Lifeline to a Brazilian Billionaire Would Be Risky
July 18, 2013 Leave a comment
JULY 17, 2013, 3:29 PM
A Lifeline to a Brazilian Billionaire Would Be Risky
A bailout of billionaire Eike Batista would look bad for Brazil. Whiffs of cronyism hang over reports that state development bank BNDES has eased debt terms for the once high-flying tycoon. Taxpayers already have up to $4.7 billion wagered on his collapsing empire. If Brasilia risks more to save a pampered tycoon, it had better be prepared for another round of street protests.
The flamboyant billionaire once called BNDES “the best bank in the world.” Now he may have even more reason to think so. Daily newspaper O Estado de S. Paulo reported that the bank is voluntarily softening the loan conditions for his heavily indebted group of companies. BNDES, Mr. Batista’s largest creditor, has denied any favoritism. Still, it would not be the first time the government has come to the entrepreneur’s aid.As recently as April, when Mr. Batista’s financial woes were already clear, BNDES agreed to a generous $464 million loan to his mining company which was free of interest or principal payments for 12 months. EvenPetrobras, the state-controlled rival of Mr. Batista’s oil explorer OGX, was deployed to lend a helping hand by offering contracts to the EBX group.
It is not hard to see why Brasilia would want Mr. Batista to thrive. His projects dovetailed perfectly with national priorities. For instance, his OGX explorer promised to help turn Brazil into a big oil exporter. One Batista company, OSX, fit with the government’s goal of rebuilding Brazil’s once powerful shipbuilding industry. Yet another, LLX, was to give the nation a modern port – another government goal. And there would be plenty of new jobs in the bargain.
Of course, Mr. Batista’s fall wouldn’t take BNDES down. Exposure to the EBX Group accounts for less than 6 percent of the bank’s regulatory capital, according to a July report from Bank of America. Since much of the bank’s loans are backed by Mr. Batista’s assets, any loss will likely be manageable – perhaps as little as $222 million, which is the uncollateralized portion of the debt, according to a report in newspaper Folha de S. Paulo.
Even so, President Dilma Rousseff can’t afford to create an impression of throwing good money after bad to help a still-wealthy industrialist. Government waste and corruption were at the heart of June’s massive street demonstrations. With Brazilians complaining over rising bus fares and sub-standard public services, few will want to throw the weight of the state behind an already pampered billionaire.
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