Argentina moves to seize control of YPF
Government targets Repsol’s shares in takeover
Argentine President Cristina Fernandez de Kirchner unveiled plans on Monday to seize control of leading energy company YPF, drawing swift warnings from key trade partners and risking the country’s further economic isolation.
YPF, which is controlled by Spain’s Repsol, has been under intense pressure from Fernandez’s centre-left government to boost production, and its share price has plunged from months of speculation about a state takeover.
Until recently, YPF had a harmonious relationship with Fernandez, whose increasingly interventionist and offbeat policies infuriate critics. She praised YPF when it found massive resources of shale oil and natural gas in late 2010.
However, a surging fuel import bill has pushed a widening energy shortfall to the top of her agenda at a time of worsening state finances in Latin America’s No. 3 economy.
Fernandez said the government would ask Congress, where Fernandez’s Peronist party is in the majority, to approve a bill to expropriate a controlling 51 per cent stake in the company by seizing shares held exclusively by Repsol, saying energy was a “vital resource.”
At current market value, YPF is worth about $10.6 billion, although a tribunal will be responsible for valuing the company as part of the takeover. Analysts say the takeover could be paid for using central bank reserves or state pension funds.
“If this policy continues — draining fields dry, no exploration and practically no investment — the country will end up having no viable future, not because of a lack of resources but because of business policies,” she said.
Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president, Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds at the height of the global financial crisis.
She has also renationalized the country’s flagship airline, Aerolineas Argentinas.
Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the devastating economic crisis and subsequent debt default of 2001/02.
Her announcement of the YPF takeover plan, however, drew strongly worded warnings from Spain and the European Union, a key market for Argentina’s soymeal exports, both of which recently criticized Argentine import curbs.
Spain’s government said it was a hostile decision against Spain and that it would announce strong measures this week, while the European Commission warned that an expropriation of YPF would send a very negative signal to investors.
But Fernandez dismissed the risk of reprisals by Spain.
“This president isn’t going to respond to any threats ... because I represent the Argentine people. I’m the head of state, not a thug,” she said.
A decade after staging the biggest sovereign debt default in history, Argentina has yet to return to global credit markets, and economic analysts said seizing control of ypf might make it even harder for the country to get fresh financing.
“YPF’S expropriation does little to improve the already poor investment climate,” said Ignacio Labaqui, local analyst for New York-based consultancy Global Medley Advisors.
Under the terms of the bill, the government would hold 51 per cent of the expropriated shares and the rest would be held by the country’s oilproducing provinces.
All of the shares targeted by the government belong to repsol, which owns 57 per cent of YPF. Argentine partner, the eskenazi family’s Grupo petersen, will not be affected. Petersen owns a 25.5 per cent stake in YPF.
Fernandez said she had also passed a decree giving the government immediate administrative control of the company.
Speculation over a takeover has been weighing on Argentine asset prices for weeks, meaning Monday’s news had been largely factored in by many investors. Still, U.s.-listed YPF shares fell 11 per cent before trading was suspended in New York and Buenos Aires.
The spread between the yield on benchmark Argentine bonds and comparable U.S. Treasuries widened 30 basis points to 975 basis points at 7:40 GMT, according to the Jpmorgan Emerging markets bond index, sharply underperforming the index.
Energy analysts say the government’s heavy-handed approach is unlikely to resolve argentina’s energy time-bomb despite the discovery of the huge shale oil and gas resources.