Brazil’s Batista embarrassment

Brazilian tycoon Eike Batista's riches to rags story must be one of the most rapid in history.

OGX, the flagship of his five public "X" companies – the X represents the tycoon's presumed ability to act as a business multiplier – collapsed last week in what is Latin America's largest corporate default in history.

The rise of his empire built on the commodities boom was nothing if not spectacular.

Batista, one of seven children, was born into mining as the son of a CEO of iron giant Vale who later became Brazil's mining minister.

The young Eike led the playboy lifestyle, dropping out of engineering school, marrying a carnival queen and Playboy model and becoming a speedboat world champion.

He started out with small-scale gold mining in the Amazon before graduating to the big leagues with gold, iron ore, oil & gas, shipping, coal, construction and sports promotion companies.

OGX's off-shore oil discoveries (such as there were) was set to give credence to Batista's publicly stated goal of amassing a $100 billion fortune to become the richest person in the world.

Ever the consummate salesman, Batista famously sold Minas Rio to Anglo-American in 2008, pocketing $5.5 billion and offloading an iron ore asset that required many billions more to put into production.

Eike, as he prefers to be called, founded OGX only five years ago with $1.3 billion, the flamboyant Brazilian raised from private investors.

He was such a master of the investment roadshow that one joke doing the rounds in Brazil's financial circles was that Batista was "the person who has made the most money from PowerPoint after Bill Gates."

As OGX shares soared taking the national stock exchange Bovespa with it, Eike became the cheerleader for Brazil's new capitalist elite and the socialist state's posterboy of entrepreneurship.

Batista's unmatched political connections more than just opened doors. He received the backing of Brazil's development bank to the tune of $10 billion and OGX's top managers came from state-owned oil giant Petrobras.

His fortune topped out at an eye-watering $32.8bn in April last year when OGX's first wells went into production with the opening ceremony attended by President Dilma Rousseff herself reports the Financial Times:

That was the peak of the relationship between Mr Batista and the government. Since then, his fall has been so swift and so high profile with his filing for bankruptcy last week that Brasília has done its best to avoid the fallout. A call to the president’s palace about Mr Batista’s travails last week returned a flat “no comment”.

The fall of Mr Batista, who in many ways was the “pet” entrepreneur of the ruling centre-left Workers’ Party (PT) government, raises questions about its future policy direction. Mr Batista’s rise gave credibility to the PT’s claims that its statist economic policies were simultaneously market friendly. Will his fall make the party more or less interventionist?

The answer will be critical to Brazil’s future prosperity. The government’s relative silence on Mr Batista’s collapse has been a surprise to some who had thought the former powerboat champion’s “X” business empire was too big to fail. More probably, Brasília realised early on that Mr Batista’s house of cards was too precarious to save.