Argentina moves to seize control of Repsol's YPF

Mon Apr 16, 2012 9:13pm EDT
* Center-left president stepping up interventionist policies
    * Government targets Repsol's shares in takeover plan
    * Move comes after months of speculation about a takeover
    * Argentina risks further economic isolation, reprisals


    By Hilary Burke and Helen Popper 
    BUENOS AIRES, April 16 (Reuters) - Argentine President
Cristina Fernandez unveiled plans o n 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, controlled by Spain's Repsol, has
been under intense pressure from Fernandez's center-left
government to boost production, and its share price has plunged
due to months of speculation about a state takeover. 
    Until recently, YPF had a harmonious relationship with
Fernandez, whose increasingly interventionist and off-beat
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, which she
controls, to approve a bill to expropriate a controlling 51
percent stake in the company by seizing shares held exclusively
by Repsol, saying energy was a "vital resource". 
    "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. 
    YPF's market value is $10.6 billion, although an Argentine
tribunal will be responsible for valuing the company as part of
the takeover. Central bank reserves or state pension funds could
be used for compensation, analysts say. 
     
  
     
    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 which recently
criticized Argentine import curbs.  
    Spain vowed "clear and strong" measures over what it called
a hostile decision, while the EU's executive European Commission
warned that an expropriation would send a very negative signal
to investors.   
    The U.S. State Department said it was following developments
on the matter. 
    Repsol described Argentina's move as "clearly unlawful and
seriously discriminatory" and said it would take legal action.
  
    But Fernandez dismissed the risk of reprisals. 
    "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. 
    Fernandez's row with YPF comes as her administration heaps
pressure on Britain over oil exploration off the disputed
Falkland Islands, over which Argentina claims sovereignty.
  
         
    INVESTMENT CLIMATE 
    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
percent of the expropriated shares and the rest would be held by
the country's energy-producing provinces.  
    All of the shares targeted by the government belong to
Repsol, which owns 57 percent of YPF. Repsol's Argentine
partner, the Eskenazi family's Grupo Petersen, will not be
affected. Petersen owns a 25.5 percent 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 factored
in by many investors. Still, U.S.-listed YPF shares fell
11 percent 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 after the announcement
but was up just 2 basis points at 948 basis points at 2100 GMT,
according to the JPMorgan Emerging Markets Bond Index,
in line with the rest of the index. 
     
    ENERGY TIME-BOMB 
    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. 
    "In the short term, I don't think this will solve anything.
It doesn't mean that YPF's going to start producing more
starting tomorrow," Argentine analyst Eduardo Fernandez said. 
    Argentina's hydrocarbons output has been in decline for
years at a time of strong demand from industry and consumers. 
    Crude production fell 5.9 percent and natural gas output
slipped 3.4 percent last year as power demand rose 5.1 percent,
according to the latest figures from the Argentine Institute of
Petroleum and Gas. 
    YPF's proven reserves of crude and natural gas - which do
not include the new shale finds - fell 15 percent and 31 percent
respectively between 2007 and 2010.   
    Massive, long-term investment will be required to bring the
shale resources on stream, and the spiraling cost of fuel
imports prompted Fernandez to seek a swifter resolution to the
country's growing energy deficit. 
    Imports of fuels such as liquefied natural gas and diesel
doubled last year to about $9.4 billion, playing a major part in
eroding the president's cherished trade surplus. 
    Bolstering foreign currency stocks is especially important
for Fernandez because she uses them to service the public debt,
freeing up more spending for the welfare programs that helped
her win a landslide re-election late last year.