Shares of Brazil's EBX companies jump on BTG Pactual deal

RIO DE JANEIRO (Reuters) - Shares of companies controlled by Brazilian billionaire Eike Batista's Grupo EBX soared on Thursday after high-flying investment bank BTG Pactual Group tossed the group a financial and management lifeline.

An agreement between Batista, 56, and fellow billionaire Andre Esteves, 43, the Brazilian financial wunderkind who controls BTG Pactual, helped lift the market value of EBX companies by more than 2.8 billion reais ($1.43 billion) by midday, according to Thomson Reuters calculations.

Under the accord, between two of Brazil's most powerful businessmen, BTG will provide access to credit and management services to EBX companies.

News of the pact halted share-price declines in EBX companies that have sliced nearly $20 billion off Batista's fortune in the past year and cost him the title of Brazil's richest man. But doubts remain over whether the deal will quickly ease financial and operational problems at Batista's oil, energy, mining, port and shipbuilding conglomerate.

"This makes sense. Things haven't moved as quickly as planned and money is running out," said Pedro Galdi, an oil and mining analyst with SLW Corretora, a São Paulo brokerage. "Batista's companies need lots of money and a credit partner, and Esteves is as sharp as a fox."

Some of the rise in EBX companies' shares is being attributed to a "short squeeze" on investors who had bet in recent weeks on further declines, according to investors and analysts, including Oswaldo Telles, an oil and gas analyst with Espirito Santo Investment bank in Sao Paulo.

Shares of OGX Petroleo e Gas Participacoes SA , Brazil's second-largest oil company by market value, rose 18.5 percent to 3.46 reais in late-morning trading in Sao Paulo. Earlier it rose as much as 28 percent. Iron ore miner MMX Mineracao e Metalicos SA was up 12.2 percent to 3.49 reais after rising as much as 20 percent.

Port and real estate group LLX Logistica SA rose 13.6 percent to 2.51 reais. Shipbuilding and ship leasing company OSX Brasil SA climbed 8.3 percent to 7.30 reais. Natural gas and electricity company MPX Energia SA rose 1.2 percent to 11.18 reais.

SHORT SQUEEZE

A short squeeze happens when investors, known as short sellers, lose a bet that shares will fall. They sell borrowed stock and hope to buy it back more cheaply and make a profit. But if the shares rise, short sellers are forced into a buying scramble to avoid losses, driving prices up further still.

"The BTG Pactual deal has put a floor under the stock," Telles said. "I don't believe this is so much a fundamental move as a short squeeze. To rise more, we will have to wait and see if Esteves can really help EBX group operations, but the down side is largely gone."

Despite today's gains, OGX is still down more than 80 percent from its all-time-high close of 23.03 reais in October 2010. MMX and LLX are down nearly 80 percent from all-time highs in 2008 and 2010, respectively.

"This is simply a partnership aimed at increasing the flow of funding for a group that was running short of financing. I don't see how this will solve Grupo EBX's operational shortcomings," said Dany Rappaport, who oversees 320 million reais of investments at InvestPort in São Paulo and is not planning to add any shares of Batista-controlled companies soon.

MANAGEMENT SHUFFLE

Esteves comes on board after a series of EBX management shake-ups failed to boost performance and calm investor concern that missed construction and production targets would starve EBX companies, most in the start-up phase, of cash to fund operations and pay debt.

For example, at EBX's largest company, OGX, Batista has fired the chief executive officer, chief financial officer and exploration director since June. Many OGX drilling projects are now behind schedule, and production lags expectations.

"Eike is a manager who has set high goals for managers and then fired them when they can't deliver, and this hasn't worked," Telles said. "Esteves has good management people with administrative experience available to him. Whether Eike will follow his advice is yet to be seen."

Telles believes Batista's motivation for the deal with Esteves is aimed more at helping ease his own financial obligations for investment in EBX companies, rather than fixing management problems at those companies.

FORTUNE SHRINKS

Last year, Batista was ranked by Forbes Magazine as the world's seventh-richest man, with a net worth of $30 billion. Setbacks, including lower-than-expected output from oil wells operated by OGX, delays in the construction of ports in southeast Brazil, and an economic downturn, have cut his net worth by $19.4 billion

This month Forbes said Batista's $10.6 billion fortune made him the world's 100th-richest man - a ranking that pushes him out of Latin America's Top 10.

Brazil's richest man is now Jorge Paulo Lemann, a Swiss-Brazilian financier who helped build Anheuser-Busch InBev into the world's largest beermaker and recently led a group that includes Warren Buffet in a bid to buy H.J. Heinz Co for $23 billion.

Esteves is known for his passion for deal-making, and the partnership with Batista will likely strengthen his reputation as Brazil's leading investment-banker. Since the 1990s, the mathematician-turned-banker has overseen some of Brazil's most impressive takeovers and corporate restructurings.

($1 = 1.96 Brazilian reais)

(Additional by Guillermo Parra-Bernal, Danielle Assalve; Editing by John Wallace)