Bloomberg News

Argentina Congress Backs Takeover of YPF From Repsol

May 04, 2012

A logo for Repsol YPF SA stands outside a gas station near a roadside bull advertisement near Valdemoro, Spain. Photographer: Angel Navarrete/Bloomberg

A logo for Repsol YPF SA stands outside a gas station near a roadside bull advertisement near Valdemoro, Spain. Photographer: Angel Navarrete/Bloomberg

President Cristina Fernandez de Kirchner won Congressional backing to seize YPF SA (YPFD), the country’s biggest energy company, from Spain’s Repsol YPF SA (YPF:US) as the government seeks to boost oil production and cut imports.

The lower house voted 207 to 32 yesterday to back Fernandez’s bill empowering the government to take 51 percent of YPF. The Senate had approved the legislation on April 26. The government hasn’t said how much it will pay for the stake, which Repsol valued at $10.5 billion, or how it will pay for it.

“Beginning now, our oil will stop being a commodity for Repsol but a basic good to be used for the development of the country,” ruling party lawmaker Agustin Rossi said as the debate wound down.

Shortages at gas stations and a doubling of fuel imports last year, which Fernandez blamed on a lack of investment and declining oil production, helped unify support for the expropriation in both chambers of Congress. Repsol has denied the government’s accusations, saying it invested more than $20 billion since 1999, when it took control of YPF.

Repsol’s shares have tumbled 22 percent to 13.6 euros since Fernandez announced the takeover plan on April 16, while YPF’s American depositary receipts (YPF:US) fell 25 percent to $14.60 as of 11:46 a.m. New York time. Repsol’s shares fell 1.8 percent in Madrid today. YPF shares rose 4.9 percent to 80.9 pesos on the Buenos Aires stock exchange.

Default Swaps

The cost of insuring against an Argentine default initially surged the most in the world after Fernandez’s decision. The country’s five-year credit-default swaps climbed 14 basis points, or 0.14 percentage point, to 924 basis points since her announcement. The extra yield investors demand to own Argentine government dollar bonds over U.S. Treasuries was little changed at 973, according to JPMorgan Chase & Co.’s EMBI Global index.

Fireworks erupted outside the Congress building in Buenos Aires after the results were announced and a crowd waving flags celebrated. About 62 percent of Argentines back the takeover, according to an April 19-20 survey by Poliarquia Consultores published in newspaper La Nacion. The poll of 1,115 people had a margin of error of 3 percentage points.

“The benefits of this measure won’t be for the government of the day but for the entire nation,” lawmaker Fernando Solanas said during the debate. “Natural resources belong to the nation.”

CEO Candidate

Miguel Galuccio, a former executive at Houston-based oil services company Schlumberger Ltd., is likely to be named YPF’s chief executive officer, newspaper Ambito Financiero reported yesterday, without saying how it obtained the information.

Galuccio, an Argentine citizen, was tapped to run the company more than two months ago and resigned as president of Schlumberger’s Integrated Project Management unit last month, the Buenos Aires-based newspaper said.

Since taking office in December 2007, Fernandez has nationalized Aerolineas Argentinas SA and seized $24 billion in private pension funds. The 59-year-old lawyer won a second four- year term by a landslide in October elections after overseeing economic growth that averaged 6.5 percent from 2008-2011.

Fernandez is pressuring energy companies to boost output after fuel imports doubled to $9.4 billion in 2011 from the previous year, narrowing the country’s trade surplus to a one- year low of $280 million in December.

Price Controls

Controls on gas, oil and utility prices, which the government introduced in 2002 as part of its anti-inflation policy, have reduced investment and driven foreign companies such as GDF Suez (GSZ) to leave the country, while others, including BG Group Plc, closed local offices.

“Fernandez is right about those numbers but she makes it seem as if she had nothing to do with them,” said Camilo Tiscornia, a former central bank economist who now runs research company C&T Asesores in Buenos Aires. “Repsol’s performance is a result of the government’s regulation of the sector.”

Planning Minister Julio De Vido and deputy Economy Minister Axel Kicillof, who Fernandez appointed last month to run YPF for 30 days, have met with officials from Petroleo Brasileiro SA (PETR4), Chevron Corp. and Exxon Mobil Corp. to discuss future investments.

Argentina’s oil production dropped to 35.3 million cubic meters in 2010 from 45.4 million in 2001, according to the most recent data published by the Argentina Oil and Gas Institute. YPF produces about 34 percent of the country’s crude. Economic growth will slow to 3 percent this year from a yearly average of 7.7 percent since 2003, according to the median estimate of eight economists surveyed by Bloomberg.

Payment Appraisal

Fernandez said Argentina’s National Appraisal Tribunal will decide how much the government will pay for the YPF shares. In an April 17 presentation to senators, Kicillof rejected Madrid- based Repsol (REP)’s claim that the stake was worth $10.5 billion.

The government won’t pay Repsol any compensation for the takeover, after taking into consideration environmental damage, dividend payments and allegedly insufficient investments, Daniel Kerner, a Buenos Aires-based analyst at the Eurasia Group wrote today in an e-mail report.

“The numbers that some executives talked recklessly about in valuing the company will be revised as we review the fine print and the secret information managed by the company,” Kicillof said.

Government ‘Demagoguery’

Repsol Chairman Antonio 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 in Cartagena, Spain, on April 17. “Mr. Kicillof won’t set the price.”

The YPF expropriation was condemned by the World Bank and the European Union. World Bank President Robert Zoellick said Argentina is an “outlier” in Latin America and most of the region’s leaders see the country’s nationalization of YPF as a “mistake.”

The European Union “will do everything in our power” to support Spain in its dispute with Argentina, EU Trade Commissioner Karel De Gucht said on April 24.

Oscar Aguad, a lawmaker from the Radical Civic Union, said he expects the case eventually will go to the World Bank International Center for Settlement of Investment Disputes, known as Ciadi, which would probably place a higher price on the shares than Argentina.

“The government will pay a high price for this expropriation,” said Aguad. “Argentina is going to lose a lawsuit at the Ciadi and the country will also suffer a big loss of credit.”

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at

To contact the editor responsible for this story: Joshua Goodman at

Steve Ballmer, Power Forward

Companies Mentioned

  • YPF
    (YPF SA)
    • $31.39 USD
    • 0.07
    • 0.22%
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