How ex-Billionaire Eike Batista lost $25 billion in 18 Months

The consensus tends to shrug off the adverse impact of having too much debt. They never seem to realize that whatever illusions of prosperity brought about by having too much debt can be lost in a snap of finger.

Former Brazilian billionaire Eike Batista’s case, which I earlier raised, is a wonderful example of an individual’s boom-bust cycle.

Here is a snippet from CNBC-Reuters:

Since then, things have gotten worse for Batista. Hit by mounting debt, a series of project delays and a crisis of confidence, his six publicly listed companies have suffered one of the most spectacular corporate meltdowns in recent history.

The Brazilian billionaire, who dismissed his critics as he sold investors on the promise of OGX's oil discoveries, was also EBX's biggest investor. He pumped billions into the group's companies even as share prices plunged by as much as 90 percent.

His own fortune - the world's seventh-biggest last year, according to Forbes - has declined by more than $25 billion over the past 18 months.

OGX's failure - and the subsequent unraveling of EBX - reflects Batista's initial success in overselling investors on oil discoveries that proved to be more difficult to recover than they expected.

But the story is not so simple. His empire also fell victim to the sudden end of both the global commodities boom and a wild exuberance for emerging markets - two forces that attracted investors to Batista's vision.

Mr. Batista is now only worth $200 million from over $30 billion according to Celebritynetworth.com

Mr. Bastista is a high profile case, but there are other figurative riches to rags (lost billions) story  such as Zynga’s Mark Pincus Chesapeake Energy Aubrey McClendon and Softbank’s Masayoshi Son (Forbes)

The bottom line is that the fatal cocktail mix of overconfidence, aggressive expansion using debt and patent disregard of risks can lead to evaporation of one's wealth. Much of today's debt financed illusionary wealth will be unmasked once the interest rate environment radically shifts.