Bloomberg News

Repsol Required to Buy Eskenazi YPF Stake

April 20, 2012

Automobiles refuel at night at a Repsol YPF SA gas station in Madrid. Photographer: Angel Navarrete/Bloomberg

Automobiles refuel at night at a Repsol YPF SA gas station in Madrid. Photographer: Angel Navarrete/Bloomberg

Spain’s Repsol YPF SA (REP), whose YPF unit was nationalized by Argentina this week, agreed in 2008 to buy back the Eskenazi family’s shares in that oil company in the event that Repsol loses majority control.

The accord also calls on Repsol, under certain conditions, to take over loans the family used to buy YPF shares. Kristian Rix, a spokesman for Madrid-based Repsol, today said the agreement is “not applicable” in the context of expropriation. An Eskenazi holding company said it isn’t analyzing the sale or liquidation of its shares in YPF, in an e-mail to Bloomberg.

Repsol, based in Madrid, probably would try to fight a move by the Eskenazis to enforce the accord by using a so-called force majeure argument, according to two lawyers familiar with the matter who saw the document or were briefed on it. The Eskenazi family’s 25 percent stake wasn’t nationalized.

Repsol Chairman Antonio Brufau this week called the expropriation illegal and estimated Repsol’s potential loss at 5.7 billion euros ($7.5 billion). The uncertainty of getting compensated by Argentina’s government has pounded Repsol’s shares. While the stock gained for first time in four days, rising 1.7 percent to close at 14.92 euros, the price is down 15 percent this week.

Repsol would argue that Argentina’s seizure of 51 percent of Buenos Aires-based YPF was an unforeseeable event preventing it from fulfilling its obligation to the Eskenazis, said Tom Ginsburg, a professor of international law at the University of Chicago, in a telephone interview. He hadn’t seen the accord, which is subject to Spanish law.

Not Foreseen?

“It’s black-letter law that expropriation by a government would constitute force majeure so long as it was not foreseen or foreseeable by the company,” Ginsburg said. “The Eskenazi family will argue that Argentina had a long history of expropriation, so it should have been foreseeable that a change in ownership could come about through a government takeover.”

Repsol will claim that it didn’t voluntarily change its ownership stake, so it doesn’t have a duty to pay the Eskenazis, Ginsburg said.

“The event that would trigger their duty would be limited to a market-driven transaction rather than a government expropriation,” Ginsburg said. “The Eskenazi argument essentially makes Repsol the insurer against government expropriation. If I’m Repsol, why would I agree to that?”

The family’s Petersen Group holding company said it isn’t analyzing the sale or liquidation of its shares in YPF and is looking at financial alternatives with its banks, according to an e-mailed statement today from the company. Loans used to acquire the stake in YPF remain outstanding, Petersen said.

Swaps Gain

The company’s credit-default swap, a form of insurance against defaulting on its bonds for five years, was 7.7 percent higher at 398 basis points at 6:50 p.m. local time. The price has risen 28 percent in the last four days.

Repsol’s debt rating yesterday was cut one level by Standard Poor’s Ratings Service to the lowest investment-grade level.

A spokesman for the Eskenazis’ Petersen Group holding company, which owns about 25 percent of YPF, didn’t respond to phone calls and e-mails seeking comment.

Argentina President Cristina Fernandez de Kirchner ousted Sebastian Eskenazi as the head of Buenos Aires-based YPF on April 16, appointing Planning Minister Julio de Vido and Deputy Economy Minister Axel Kicillof to run the company and announcing plans to seize a 51 percent stake in YPF from Repsol.

The takeover follows those of airline Aerolineas Argentinas SA and a $24 billion pension fund by Fernandez since she took office in 2007.

Import Restrictions

The Eskenazis made their fortune in banking and construction, buying 15 percent of YPF from Repsol in 2008 in a deal backed by then-president Nestor Kirchner, the late husband of Fernandez. The acquisition was financed with a syndicated bank loan and a seller’s note from Repsol. The Eskenazis bought an additional 10 percent of YPF in 2011 with two similar loans.

Since Kicillof took charge of the ministry’s economic policy secretariat, Argentina has boosted import restrictions, changed the central bank’s charter to give government more access to reserves and boosted restrictions on Argentines’ access to foreign currency.

Brufau said Argentina will have to pay a fair price for YPF because courts won’t be swayed by the government’s “demagoguery.”

“The country will have to pay us sooner or later,” Brufau told reporters at the opening of an upgraded refinery in Cartagena, Spain, on April 17. “Mr. Kicillof won’t set the price. I don’t think he knows much about valuing companies.”

$16 Billion Acquisition

Repsol spent $16 billion on acquiring control of YPF in 1999. The Argentina government first sold part of the former state-owned company to private investors in 1993, during a wave of privatizations by then-President Carlos Menem.

Argentina has taken control of YPF as the government seeks to curb declining oil production after reserves fell 18 percent between 1998 and 2010, according to data compiled by the Argentine Oil and Gas Institute. YPF is the largest oil producer in the country, with about 34 percent of output, Energy Secretariat data show.

Any Repsol-Eskenazi disagreement must be settled by a panel of three arbitrators working under Spanish law and International Chamber of Commerce regulations in New York, according to the accord. Repsol and the Eskenazis can appoint a member of the panel each with the third chosen by their representatives.

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net; Michael Hytha at mhytha@bloomberg.net.


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