The salesman of Brazil

Mr Batista (pictured, sharing a stage with Brazil_s president, Dilma Rousseff) dropped out of his engineering course ...

Mr Batista (pictured, sharing a stage with Brazil_s president, Dilma Rousseff) dropped out of his engineering course and left Germany for his native Brazil. He bought gold from wildcat miners in the Amazon, sold it in Rio de Janeiro, and made $6m by the age of 25. He borrowed more_and lost most of it_buying out pick-and-shovel operators and trying to mechanise their mine. Food, fuel and equipment had to be flown in. Workers got sick. Finally, the mine started producing. That taught him to stick to _idiot-proof assets_, he now quips, with such high margins that even big setbacks can be survived.

He bought more mines abroad. By 1986 he was chairman of a Canadian goldminer that grew to be worth a tasty $1.7 billion. By 2001, legal troubles in Russia and Greece had slashed that to $1 billion. Mr Batista resigned and returned home to Brazil to sell new dreams.

Since 2004 he has set up and listed five companies: MPX (energy generation); MMX (mining); LLX (logistics); OGX (oil and gas) and OSX (shipbuilding). A sixth, one of his few non-Brazilian assets, a Colombian coal mine, will be spun off from MPX on May 25th. Together with four unlisted companies in entertainment, precious metals, information technology and property, these make up the EBX empire. (All those Xs are supposed to represent wealth multiplying.) Few have yet made profits. Some were listed before they were much more than an idea. But selling potential has made Mr Batista Brazil_s richest man and the world_s seventh-richest, with a fortune estimated at $30 billion. That_s more than Mark Zuckerberg of Facebook. Mr Batista says he will not be satisfied until he has taken the top spot from Carlos Slim, a Mexican telecoms tycoon.

Batista_s view of Brazil

The EBX empire reflects Mr Batista_s understanding of Brazil_s strengths and weaknesses. The country has copious minerals; Mr Batista extracts them. It also has skimpy infrastructure. Not Copacabana bikini skimpy, but far too slight for such a big place: hence the queue of ships idling off Rio_s beaches, waiting for a slot at its overburdened port. Mr Batista aims to build roads, railways, ports, ships and refineries to shift Brazil_s minerals to the global market. He is also building power plants, to be fuelled by his own gas and coal.

It was OGX, Mr Batista_s oil-and-gas firm, that propelled him from rich to super-rich. He founded it in 2007, a few months before Brazil_s state-controlled oil giant, Petrobras, announced the discovery of huge offshore pr__-sal (_sub-salt_) oil reserves. Some promising blocks were withdrawn from auction later that year_but guided by old hands from Petrobras, including Paulo Mendon_a, its recently retired head of exploration, OGX bid for those still on offer. It won 21, most in shallow water. Since then Brazil has auctioned no more offshore fields, leaving OGX as its largest private oil firm. Its 2008 listing raised $4.3 billion, at the time a record for Brazil.

Sitting in his 22nd-floor office at EBX_s headquarters in Rio, looking out at a picture-postcard view of P__o de A___car (Sugar Loaf mountain), Mr Batista describes himself as a _truffle-sniffing labrador_. Prospectors typically search in 17,000 places for every gold find, he says: in his goldmining days he got lucky eight times. Perhaps 85% of OGX_s test wells have struck oil. At its Waimea deposit OGX went from discovery to production in just two years, a world record. The first 1.2m barrels were sold to Shell in March. And unlike Petrobras, which is the sole operator in the pr__-sal regions, OGX_s production costs are low: in the bottom 20% globally.

EBX has assets in nine Brazilian states. But it is at the Port of A_u in Rio state that Mr Batista_s vision of the new Brazil is clearest to see. The original idea was to build an offshore terminal through which to ship iron ore from his Minas-Rio mine. After that was sold in 2008 to Anglo American, the project grew into a joint venture with the global mining giant. Mr Batista started to think bigger. With 70% of Brazil_s GDP in the south and south-east, why not add a container terminal to vie with the region_s pricey, crowded ports? Then came the vast oil finds, and the plans expanded once more, to include an industrial complex, oil-handling facilities and a shipyard.

Now LLX is trying to strike a deal with Vale, Brazil_s biggest mining firm, to rebuild a dilapidated railway that passes nearby, and to persuade the government to upgrade local roads. A new city will be built to house workers (_a Venice of the tropics_, Mr Batista likes to call it; to everyone else, it is _Eikel__ndia_). The first shipments of iron ore are scheduled for 2013, and both terminals should be ready by the end of that year. By 2015, if all goes to plan, A_u will be the world_s third-largest port complex, moving 350m tonnes of cargo a year.

Buy local, buy dear

Brazil_s government insists that oil-and-gas operators buy most of the equipment they need from overpriced domestic manufacturers. This is a heavy burden on Petrobras, which needs sophisticated kit to drill miles beneath the ocean floor, and a big reason why the company_s share price has languished in recent years. But the rule is needed, says Mr Batista, to promote industrial development. _You think Brazil can lose this chance and not build a ship industry?_ he asks. Even if it pushes up OGX_s costs by 50%, he says, his oilfields will still make money.

Meanwhile, other parts of his empire are taking advantage of local-content rules. OSX will supply ships and rigs to OGX and, Mr Batista hopes, to Petrobras too. He hints at other possibilities for co-operation with his giant competitor: perhaps it will dock its ships at his port and use his oil-treatment plant. And crucial to LLX_s plans is the expectation that global suppliers, forced to set up in Brazil if they want a piece of the oil bonanza, will choose A_u_where, as a bonus, they will face state sales taxes of 2% instead of 18%, a holdover from the area_s impoverished history.

Mr Batista credits part of his success to his father, who pushed him out of the nest. During the 1980s and 1990s, when Brazil was suffering from hyperinflation and struggling to pay its foreign debts, Eliezer Batista, who put in two stints as chairman of Vale between 1961 and 1986 as well as a brief spell as minister for mines and energy, _thought, like many Brazilian fathers, that maybe Brazil would not make it._

Prospecting for gold around the world toughened his son up. But he bridles at any suggestion that his father provided any more concrete assistance, such as telling the labrador where to sniff. _Nothing was given free to me,_ he says. His mining concessions were bought or claimed on terms that were available to everyone else, and likewise his oilfields. _I bid against Petrobras, Exxon, Shell, all the big boys, and I paid a billion dollars,_ he says. He is touchy too at the suggestion that he poached talent from Petrobras. They retired and he rehired them, he insists.

Mr Batista is neither a crony capitalist nor a self-made man, but something in between, says Sergio Lazzarini of Insper, a S__o Paulo business school. Part of his success is due to his vision and boldness_but he has also mastered the skill of developing and building on connections within government. He points to Mr Batista_s strategic generosity: a wad of cash towards a flattering biopic about the previous president, Luiz In__cio Lula da Silva; $12m towards Rio_s successful bid to host the Olympics in 2016; millions more to equip police in Rio_s favela s. And quite apart from whether EBX_s conglomerate structure makes operational sense, it certainly helps to get value out of such investments. _Links forged in one area of operations can be reused in another,_ says Mr Lazzarini.

A commonly muttered criticism of Mr Batista is that he is too good a salesman to be true. Creating buzz right through the oil-and-gas supply chain was essential to get firms to prepare for increased production, and hence to make Mr Batista_s grand plans come to fruition, says Lucas Blender of Gera___o Futuro, a stockbroker. But Mr Batista_s detractors dismiss him as the only person besides Bill Gates to have made billions from PowerPoint.

His tendency to go to market soon after developing a concept can certainly misfire. Shortly after the 2010 listing of OSX, EBX_s shipbuilding arm, Brazil_s environment ministry refused him permission to build a shipyard in the southern state of Santa Catarina, which had been described in the prospectus as central to the company_s plans. Mr Batista picked himself back up and moved his planned shipyard to A_u. But the setback fed doubts about his ability to keep his glittering promises.

In March _poca Neg__cios, a Brazilian business monthly, put Mr Batista on its cover, with the caption: _And so, Eike, are you going to deliver?_ That provoked a frenzy of tweets to his 865,000 Twitter followers. _And so, _poca Neg__cios, when will you deliver reporting consistent with the facts?_ ran one tweet. In another, he warned _poca not to ask for access again.

Mr Batista says he has already delivered plenty. EBX, he vows, will generate $1 billion in EBITDA this year, increasing to $10 billion by 2015. As for the idea that behind his showmanship there is little substance, he points to the various hardheaded types who have been through his books and gone on to become his partners. In 2010 Hyundai Heavy Industries, a South Korean shipbuilder, took a 10% stake in OSX. In January E.ON, a German energy firm, signed a joint venture with MPX. In March Mubadala, a sovereign-wealth fund from Abu Dhabi, bought 5.63% of EBX for $2 billion. Many of his assets have been confirmed by independent regulators, he points out, and all his public firms are listed on the Novo Mercado, the segment of S__o Paulo_s stockmarket with the highest standards of disclosure and transparency.

Delivering everything he has promised will be tough for Mr Batista, says Mr Blender_but that is the price of fitting together so many pieces of Brazil_s commodity-and-logistics jigsaw puzzle. Last month IBM bought a 20% stake in SIX Automa___o, EBX_s technology-services subsidiary, and signed a deal to run all EBX_s IT operations for the next decade. The aim, says Rodrigo Kede of IBM Brasil, is to manage the conglomerate_s computing needs during a period of rapid growth, and to improve efficiency. _One idea we_re working on is a predictive model for the maintenance of drilling platforms._ Another is to use IBM_s _Smarter Cities_ technology to plan and manage the residential areas that will grow up around LLX_s ports.

Selling his projects, and himself, so hard was a conscious decision, says Mr Batista. He points to another, more pleasing magazine cover, framed on his office wall: a mock-up of _Eike Xiaoping_ captioned: _To become rich is glorious_. According to Veja, a Brazilian weekly, Brazil_s newly minted millionaires model themselves on Mr Batista. After so long in the economic doldrums, Brazilian entrepreneurs needed a confidence boost, he says.

Another reason why Mr Batista courts publicity is to encourage_or shame_other rich Brazilians into giving away some of their lucre, he claims. Mr Batista is paying to clean up Rio_s stinking Rodrigo de Freitas lake, but _Where are the other billionaires? Why don_t they adopt a lake?_ Asked what worries him, he first says rising labour costs, but then changes his mind. People are always asking what he is afraid of, but he can think of nothing. _Give me time. Let me work,_ he says. He has done enough to convince investors to give him more time. But sooner or later Brazil_s salesman will have to deliver.

by The Economist


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