Carlos Slim has amassed a fortune of more than $60 billion by investing in real estate and telecommunications. His recent foray into the oil industry is becoming a rare misfire.
Slim, 70, bought stakes in Bronco Drilling Co. and Allis- Chalmers Energy Inc. over the past four years, betting the oil- service companies would win contracts from state-run Petroleos Mexicanos. Bronco and Allis-Chalmers have tumbled 42 percent and 75 percent respectively since Slim first disclosed his stakes in part because Pemex delayed hiring contractors.
So far the Mexican billionaire has lost about $40 million on the trades. The loss is unlikely to deter the businessman from making bigger wagers on energy projects, said Jacques Rogozinski, who supervised the sale of Telefonos de Mexico SAB to Slim in 1990 as head of Mexico’s Office of Privatization.
“He’s very patient, and when he gets into a sector, he is using that opportunity to also learn the business,” said Rogozinski, who is now general manager of Inter-American Investment Corp., a lender affiliated with the Inter-American Development Bank, in Washington. “I don’t think he’s too worried about getting a fast return.”
Slim, named the world’s richest man this year by Forbes magazine, has the means to hold out for improvement. His stakes in Houston-based Allis-Chalmers and Edmond, Oklahoma-based Bronco are now worth a combined $33 million, a fraction of his $60.7 billion in public holdings, according to data compiled by Bloomberg.
Speaking to reporters on Sept. 28 in Sydney, Slim said he’s open to investing in oil and energy outside of Mexico, adding his companies are building two hydroelectric dams in Panama.
‘Near the Top’
Carso Infraestructura y Construccion SAB, one of the companies Slim used to buy Bronco and Allis stakes, fell 11 percent this year through yesterday, compared with a 3.3 percent gain in Mexico’s IPC stock index.
Slim and executives of Mexico City-based Carso Infraestructura y Construccion, known as Cicsa, declined to comment, according to Slim’s press office. Bob Jarvis, a spokesman for Bronco, declined to comment. Allis-Chalmers Chief Executive Officer Munawar Hidayatallah and Chief Financial Officer Victor Perez didn’t respond to telephone messages.
Slim’s Inmobiliaria Carso fund disclosed a stake of 2.2 million shares in Bronco in October 2008, when the stock was trading above $6. He bought an additional 2 million shares through March 2009 as the stock fell further. He has warrants to buy 5.44 million Bronco shares for at least $6.50 apiece, above yesterday’s close of $4.07.
“Carlos bought in kind of near the top,” said Brian Uhlmer, a Houston-based analyst at Pritchard Capital Partners LLC, an energy-industry investment bank founded in 2001. “I don’t know why he’s still holding it. They’ve shut down a lot of that drilling.” Uhlmer advises holding on to Bronco shares.
In September 2009, Cicsa bought a 60 percent stake in Bronco’s Mexico unit to expand oil services in Latin America. Bronco, in which Inmobiliaria Carso has a 15 percent stake, may seek to redeploy more equipment to Mexico if demand there improves, said Judson Bailey, a Houston-based at Jefferies & Co. The firm helped manage Bronco’s initial share sale in 2005.
“Mexico is viewed as an opportunity, because it’s an area that has a lot of hydrocarbons and clearly need rigs,” said Bailey, who has covered the drilling industry for 10 years.
Through Carso Infraestructura and Inmobiliaria Carso, Slim has held a stake in Allis-Chalmers since at least February 2007, according to U.S. regulatory filings. The company provides drilling and oilfield services mostly in the U.S. and Argentina, with units in Brazil, Bolivia and Mexico. Allis-Chalmers lost more than two-thirds of its value in 2008 after shareholders rejected a takeover offer by Bronco, two months before Slim disclosed his Bronco stake.
Cicsa, with a market value of 18.6 billion pesos ($1.48 billion), does drilling projects for Pemex. Oil represents less than one-third of its sales.
Capital Spending Postponed
Pemex executives including Chief Executive Officer Juan Jose Suarez Coppel have said since at least October 2009 that new drilling contracts that reward drilling companies for performance would become available within a few months. The contracts have not yet materialized.
Carlos Morales, Pemex’s head of exploration and production, said in a July conference call the new contracts will be offered next month. Pemex’s press office in Mexico City didn’t respond to e-mail messages yesterday.
Cicsa cited the Pemex contract woes for the 39 percent sales drop in its chemical and petroleum unit last quarter, the worst performance of Cicsa’s five divisions.
“As everybody knows, Mexico is in a little bit of disarray at this point,” Bronco Chief Financial Officer Zachary Graves said in an August conference call.
America Movil’s Surge
Of 12 Mexican and U.S. companies Slim has disclosed holding from the end of 2008 through today, only one business besides Bronco, Allis-Chalmers and Cicsa has had a declining share price in the period. Telefonos de Mexico SAB, the nation’s largest phone carrier, has dropped 35 percent after the 2008 spinoff of its international unit, Telmex Internacional SAB.
Slim’s acquisition of Telmex in 1990 from the government helped expand his wealth, especially after the company spun off America Movil SAB in 2001. Slim’s stake in the wireless carrier, Latin America’s largest, is worth about $40 billion, according to data compiled by Bloomberg.
Slim’s best option for his Bronco stake may be to wait for a buyer, as happened with Allis-Chalmers, said Bailey of Jefferies. Allis-Chalmers has doubled from a July low of $1.83 after Seawell Ltd. announced in August it would buy the company.
“It’d crush the stock if he tried to sell out,” said Bailey. “It’s in his best interest to get the company sold or buy it outright.”
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