Argentina Seizes Control of YPF

Spanish owner Repsol is ousted after dispute over declining oil output.

Argentine President Cristina Fernandez de Kirchner seized control of YPF SA, the nation’s largest crude producer, ousting Spanish owner Repsol YPF SA after a dispute over slumping oil output and investments.

Argentina took over management of YPF with immediate effect, replacing Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido, Fernandez said yesterday in a speech in Buenos Aires. The government will also send a bill to Congress to take a 51 percent stake in YPF, she said.

The takeover follows more than two months of increasing government pressure on YPF after fuel imports doubled to $9.4 billion last year. The country sought to block YPF dividends and backed provincial governments when they revoked 15 oil field licenses. Fernandez also seized a $24 billion pension fund and airline Aerolineas Argentinas SA since taking office in 2007.

“They are going to be closing the country as an investment destination,” Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London, said yesterday in a telephone interview from the city. “What’s surprising is that they are expropriating assets rather than going through a fair market means to get hold of a stake in the company. That sets a terrible precedent.”

Argentina, which defaulted on a record $95 billion of debt in 2001, needs to regain control of Buenos Aires-based YPF to avoid becoming “an unviable country,” after oil production slumped, Fernandez said to the accompaniment of cheers from supporters at the presidential palace. Compensation for the seizure will be determined by the National Appraisal Tribunal, Fernandez said, without giving more details.

Argentina will manage YPF “professionally,” Fernandez said, adding that the country is one of the few that doesn’t control its own oil. Deputy Economy Minister Axel Kicillof will help De Vido to run the company, according to Fernandez.

The stake in YPF gives the government control of Argentina’s shale oil reserves. YPF said in February that an independent survey showed the Vaca Muerta formation in southern Argentina holds at least 23 billion barrels of oil, of which at least 13 billion barrels belong to YPF.

Argentina is expropriating YPF for the “public good,” a government official said in yesterday’s speech.


‘Hostile Decision’

YPF American depositary receipts tumbled 11 percent to $19.50 before being halted yesterday in New York. Earlier, they plunged as much as 21 percent to $17.41.

Yields on YPF’s dollar bonds due in 2028 fell 16 basis points to 9.94 percent. The bond’s prospectus says that a nationalization of the company is considered a default event in which bondholders may request expedited repayment.

The takeover was announced after Spain’s markets closed yesterday. Repsol gained 0.06 percent to 17.48 euros in Madrid.

The decision is “a hostile decision against Repsol and therefore against Spain and the Spanish government and the government will act in consequence,” Spanish Industry Minister Jose Manuel Soria told reporters yesterday in Madrid.

“The Spanish government is working on measures that will be announced in the coming days,” he said. “They will be clear and decisive measures.”

Retaliation by the European Union would risk Argentina exports to its single-biggest trading partner outside of Latin America. Argentina sold about $14.3 billion in goods to the EU last year, up 28 percent from 2010, the national statistics agency said. Spain was the biggest destination in the EU, accounting for 3 percent of Argentina’s sales abroad.

Argentina’s action “could prove harmful for long-term private investment,” Fitch Ratings said in a statement.

Fernandez has also said she wants to resolve about $9 billion in defaulted debt with the Paris Club group of creditor nations. Negotiations with the group will be more complicated after the YPF decision, Claudio Loser, a former head of Western Hemisphere Affairs at the International Monetary Fund, said yesterday in a telephone interview from Miami.

Calls to YPF were referred to De Vido’s spokesman.

YPF’s output accounted for about 34 percent of the nation’s production in 2011, according to energy secretariat data. The company is also the country’s largest fuel retailer and refiner, with about 50 percent of refining capacity.

Energy demand grew over the past decade as Argentina recovered from a financial crisis. South America’s second-largest economy expanded an average 7.8 percent since 2003, including 8.9 percent growth last year.

As economic growth spurred demand for fuel, oil output declined. Since 1999, the year Repsol acquired its controlling interest in YPF, production dropped 32 percent to 33.2 million cubic meters last year, according to data compiled by the Buenos Aires-based Argentine Oil and Gas Institute.


‘International Isolation’

“This expropriation is madness and its only result will be international isolation,” opposition lawmaker Julian Obliglio said in an e-mailed statement. “The President has broken a history of tradition, respect and solidarity that link us to Spain.”

Argentina sold most of YPF, which had been owned by the state, to private investors in the early 1990s. The government retained a 0.2 percent stake and a so-called golden-share that entitles it to make certain decisions, including the veto of takeovers.

After acquiring control of YPF, Repsol sold a 15 percent to Argentina’s Eskenazi family in 2008 and a further 10 percent last year. Until today’s announcement, Repsol owned 57.4 percent of YPF.

The Eskenazis received two bank loans and two loans from Repsol to finance the acquisitions. The last installment of the first bank loan is due in May. They must start repaying the first Repsol loan next year.

Under the terms of the Eskenazi acquisitions, YPF paid dividends of 90 percent of net income in two semi-annual payments. The government representative on the board voted against the dividends twice in 2011 and again this year.

The government requested at a March 8 board meeting that, instead of paying dividends, the money should be invested in production and exploration.

As governor of the southern oil-producing province of Santa Cruz, Fernandez’s late husband and predecessor Nestor Kirchner sought to acquire 5 percent of YPF’s shares on the New York Stock Exchange in the 1990s in an attempt to gain a seat for the province on the board, Fernandez said in a March 1 speech to Congress.

Kirchner had to stop buying the shares once Repsol took over YPF, she said.



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