It’s one that brings together many of the threads of the
crisis racking the global economy. Corruption ranks high amongst the issues
enraging the protestors who took to the streets more than three weeks ago. And
multi-billionaire Eike Batista, owner of the EBX group of companies, is at the
centre of it all.
Batista’s property arm IMX has a small stake in the
consortium that is leasing the newly-renovated stadium from the state
government. IMX pitched the idea for the deal, carried out the financial
viability analysis, and then, to nobody’s surprise, since Batista is a friend
of Rio ’s governor Sergio Cabral, won.
But there’s much more to this than a seedy scandal.
As well as property, Batista has interdependent interests in
oil, mining, ports and railways, technology, as well as sports, entertainment
and catering. You name it, he’s into it. At the start of 2012 he’d become the
seventh richest man in the world. His personal wealth was estimated at $30
billion. He’d set his sights on becoming top of the world’s rich list. King of
the 1%.
A year later and the horrible truth is out. None of his
companies is making a profit.
On Monday, the oil company OGX called it a day, more or
less, telling the world that output from its only producing wells was coming to
an end, and would probably close next year, leaving it with one unproved field
still under development.
From 2009, the value of the EBX group soared on the
commodity price boom that resulted from global attempts to engineer a credit-fuelled
recovery from the 2007-8 financial and economic crash.
The optimism around Batista reflected a desperate belief –
more a baseless fantasy – that Brazil, Russia, India and China (the BRICs
countries) would drag the battered capitalist world economy back from recession,
depression, stagnation – all of those and more.
But it hasn’t turned out like that. China ’s
manufacturing is shrinking, and its government, risking a credit crunch as it
attempts to forestall a renewed credit crash, has now joined others around the
world in stemming its supply of the stuff.
Just the suggestion that the US Federal Reserve might soon
start reducing its programme of credit expansion sent markets around the world spinning.
Now speculators on the commodity and emerging markets are betting that China ’s demand
for Brazilian or any other country’s commodities will fall.
So the EBX group’s value has dropped
by more than 90% compared with its 2011 peak.
On the way down as well as on its way up, Batista’s group of
companies sucked in credit, mostly from Brazilian banks. These include state
development lender BNDES and Caixa, the nation's largest mortgage lender, as
well as private-sector lenders Banco Bradesco SA, and Itaú Unibanco Holding SA.
And, borrowing more to service his debts, Batista tapped
into $1 billion in capital from Malaysian oil company Petronas in May, and in
March from German utility E.ON SE and fellow Brazilian billionaire Andre
Esteves' investment bank, BTG Pactual.
Now with debts far exceeding its value, the group faces
restructuring, bankruptcy or both.
Like giant corporations everywhere Batista’s companies are
closely enmeshed in the state. As OGX crashed, three of its board members
rushed for the exit. The high-profile trio are: Pedro Malan, a former
long-serving Brazilian finance minister; Rodolfo Tourinho, a former energy
minister; and Ellen Gracie, a former chief justice of Brazil 's Supreme
Court.
Batista’s rise and fall is a microcosm of a global economy
still heavily dependent on and weighed down by debt . Today's early sell-off of shares in London in response to China's slowdown and the political crisis in Egypt are more than straws in the wind.
Gerry Gold
Economics editor
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