http://www.reuters.com/article/2012/04/16/us-argentina-ypf-idUSBRE83F19120120416?feedType=RSS&feedName=innovationNews&rpc=43
http://www.zerohedge.com/news/argentina-default-risk-surges-ypf-nationalization-cds-approach-1000-bps
Submitted by Tyler Durden on 04/16/2012 13:24 -0400
Submitted by Tyler Durden on 04/16/2012 12:52 -0400
Argentina moves to seize control of Repsol's YPF
BUENOS AIRES |
(Reuters) - Argentine President Cristina Fernandez unveiled plans on 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 (YPFD.BA), controlled by Spain's Repsol (REP.MC), 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.
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 (YPF.N) 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.
and.....
http://www.zerohedge.com/news/argentina-default-risk-surges-ypf-nationalization-cds-approach-1000-bps
Argentina Default Risk Surges On YPF Nationalization, CDS Approach 1000 bps
It would appear that the recent renewed excitement down in the Falklands was indeed the writing on the wall for a nation that is now desperate enough to nationalize foreign entities. Argentina, still unable to access capital markets years after its restructuring appears to be hitting an irrational wall again as its CDS has exploded wider recently, and even more so today with the YPF news, to near 1000bps - its widest in 4 months. Simply put this is not rational in any game-theoretic strategy and is frighteningly indicative of a supreme (irrecoverable) defection from friends-with-benefits status of the world - indicative only of massive internal problems in the South American nation. But do not worry, as Lagarde and her friends will just bring a bigger bag around to the next G-20 meeting as we are sure the IMF's members will have enough money to deal with Argentina AND Europe.
Chart: Bloomberg
and...
http://www.zerohedge.com/news/nationalizations-begin-argentina-takes-over-oil-and-gas-producer-ypf
The Nationalizations Begin: Argentina Takes Over Oil And Gas Producer YPF
Update 2: SPAIN SEES FIRMS' INTERESTS AS NATIONAL INTEREST, OFFICIAL SAYS; SPAIN ANALYZING RESPONSE TO ARGENTINA OVER YPF, OFFICIAL SAYS.Oops.
Update: TRADING HALT: YPF (NYSE)-NEWS DISSEMINATION. Translation: YPF shareholders - you have been Corzined. The money has vaporized. Jon Corzine has been appointed to the newly formed Argentina based Board of Dictators. Have a nice day
There are those who naively believe that any time the tables turn against a government, that government will quietly sit in the corner and play by the rules as its power erodes to zero. Probably the best example of just this is Executive Order 6102 when FDR, in a country that supposedly honors contract laws, issued Executive Order 6102, which effectively nationalized all private gold, no questions asked. And while we may not be there just yet, we are getting close, as demonstrated by the most recent developments in Argentina, where president Cristina Kirchner asked Congress to "expropriate" oil and gas producer YPF (which is majority owned by Repsol YPF) thereby "allowing the government to share ownership of the company with oil-producing provinces, a spokeswoman for Ms. Kirchner said Monday." What is the pretext for this move formerly associated almost exclusively with lawless, "communist" third world banana republics? Why "hydrocarbon self-sufficiency" of course. How soon until any and every government follows suit in a world in which excess liquidity sloshing around makes expropriation of vital energy producing assets a key prerogative? And how long until the resultant (accelerating) collapse in faith of the monetary system, leads government to declare "monetary self-sufficiency" and confiscate everything that is not nailed down. In exchange for worthless pieces of paper of course. Just to make it "fair". And just to return the favor, the market just sent Argentina CDS up by 60 bps, to just shy of 1000 bps. You know, because it's only "fair."
More on this sad development from the WSJ:
The mismatch in Argentina between rapidly growing energy consumption and languishing oil production after a decade of accelerated economic growth appears to be spurring the country's increasingly aggressive stance on YPF. Consumption of oil and gas increased 38% and 25%, respectively, from 2003 to 2010, but oil and gas production decreased 12% and 2.3% in that period, according to Barclays Capital.
Argentina has had to rely increasingly on costly imports. The energy trade balance swung from a surplus of about $2 billion in 2010 to a deficit of about $3 billion in 2011. Making matters worse, Argentina is increasingly strapped for dollars to pay for energy imports, as it has been coping with a wave of capital flight.
Mrs. Kirchner blames years of declining oil and gas output on companies that she says haven't invested enough. Following her cue, provincial governments in recent weeks have rescinded more than a dozen of YPF's production concessions and unleashed a wave of vitriol against the company.
But critics and industry officials say government policies such as high taxes, price caps on home energy rates and unpredictable rule changes like a suspension of tax breaks on production spending have discouraged investment.Needless to say, it is all YPF's fault it is being nationalized. As for will determine the value of equitable compensation?The bill calls for YPF's shareholders to be compensated at a value to be determined by a federal tribunal.
tribunal, but a tribunal which promises to deliver a fair and equitable transfer of monetary equivalents to those saying goodbye to their real assets.Incidentally, nationalization always and without fail, lead to a collapse in efficiency, productivity and output. We can't wait to see as more and more commodity producers are "expropriated" only to see their outputs plunge, in the process sending the price of whatever commodities are currently in circulation and/or warehoused through the roof, thus leaving the expropriators far worse off than if they done nothing.Finally, here are the Repsol YPF shareholders who will be less than delighted with this harbinger of what is to come.
All we can say about the big Spanish bank holders: nothing like being kicked when you are down.
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