Bloomberg News

YPF Grab Backfires as Imports Whittle Surplus: Argentina Credit

April 12, 2013

Argentine President Cristina Fernandez de Kirchner’s takeover of YPF SA (YPFD) to pare energy imports is backfiring and threatening to narrow the country’s trade surplus needed to pay debt.

YPF, the country’s largest energy producer, will have to spend an extra $400 million to import fuel to supply its gas stations after a flood and fire at its La Plata refinery reduced output. That will further whittle a trade surplus that narrowed 60 percent in February from a year earlier and hamper government efforts to build reserves used to pay foreign bondholders. Central bank reserves fell 7 percent this year to $40.4 billion, compared with a 0.2 percent decline in Brazil.

A year after Fernandez nationalized a majority stake in YPF from Spain’s Repsol SA (REP), output is flat and foreign investment needed to tap the world’s third-largest shale deposit hasn’t materialized. Argentina, which hasn’t borrowed from international credit markets since its $95 billion default in 2001 due to borrowing costs of 13.95 percent, has imposed currency controls and import restrictions in a bid to slow capital outflows and maintain a positive trade balance.

“Reserves will continue to fall,” due to higher imports, said former Economy Minister Roberto Lavagna in a telephone interview from Buenos Aires. Energy imports may reach $15 billion, he said, which would be a record.

Energy Bill

Argentine Economy Minister Hernan Lorenzino declined to comment on the impact YPF’s imports may have on this year’s trade surplus. Alejandro Di Lazzaro, a YPF spokesman in Buenos Aires, declined to comment in an e-mail on extra imports triggered by lower output at the La Plata refinery, the country’s largest.

The trade surplus may shrink to $11 billion this year from $12.7 billion in 2012 on the increased fuel imports, according to Alejandro Ovando, an economist at the Buenos Aires-based research firm IES.

South America’s second-biggest economy imported $1.3 billion in energy in the first two months of the year, compared with $840 million in the same period last year, according to Ovando’s estimates. The deficit in energy trade may reach a record $5 billion this year, compared with a $3 billion deficit in 2011, according to estimates by Mauricio Claveri, an economist at research company Abeceb.com in Buenos Aires.

Lack of investment in production and economic growth that averaged 7.7 percent per year between 2003 and 2010 have swung an energy surplus to a deficit in 2011, Claveri said in a telephone interview. A recovery in the economy, which may expand as much as 3 percent this year from 1.9 percent in 2012, may boost domestic energy demand further, he said.

‘Good Harvest’

A better soybean harvest this year will offset the impact of higher energy imports, according to Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York.

“With the good harvest expected for this year, the government will be able to handle this well,” he said in a telephone interview. “Even in a worst-case scenario, they will handle the situation by enforcing a tighter control on other imports to preserve a trade surplus at a time when there’s a scarcity of dollars. It’s the only country in the world that has a trade surplus target rather than an inflation one.”

Argentina, the world’s biggest soybean oil exporter, expects to harvest 48.5 million metric tons of soybeans this year, 20 percent higher than in the 2011-2012 season, according to the Buenos Aires Grains Exchange. Its estimated corn crop will rise to 25 million metric tons.

Borrowing Costs

The extra yield investors demand to own Argentine bonds instead of Treasuries narrowed 50 basis points, or 0.50 percentage point, to 1,155 basis points at 1:36 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global index.

The cost to protect $10 million of Argentine debt against non-payment during five years with credit-default swaps fell 340 basis points to 1,953 basis points yesterday, according to data compiled by CMA Ltd. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The peso fell 0.1 percent to 5.1480 per dollar.

The nationalization of YPF follows other examples in Venezuela and Bolivia where greater state control of the energy sector has led to an increase in refinery accidents, a drop in production and lower investment, according to Juan Pablo Fuentes, an economist at Moody’s Analytics Inc.

“This is just the tip of the iceberg,” Fuentes said in a telephone interview from West Chester, Pennsylvania. “The public sector lacks the technical and financial capacity to run these companies.”

To contact the reporters on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net; Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net


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