Spain's Repsol YPF shares tumble on Argentina seizure

17 April 2012 12:12  [Source: ICIS news]

By Franco Capaldo

SpainLONDON (ICIS)--Repsol YPF’s shares plummeted on Tuesday after Argentina announced it would seize a controlling interest in the Spain-based company’s oil and gas production in Argentina.

Argentina’s president Cristina Fernandez de Kirchner said the country had seized control of YPF, the nation’s largest crude producer, amid escalating tensions and accusations of a continued decline in oil and gas production and investments in the country.

A decree has been approved which has immediately placed two government ministers in control of YPF, giving them all the powers of the Board of Directors.

The president added that a bill would be presented to the country’s senate to allow the government to take over 51% of YPF shares, owned by Repsol.

At 10:30 GMT, Repsol YPF’s shares in Madrid were trading at €16.35, 6.46% down from the previous close.

Repsol owns a 57.43% stake in YPF, with a book value as of the close of 2011 of €4.122bn ($5.424bn), however, the measures taken by Argentina’s government would leave the Spanish company with only a 6% stake.

On Monday, Repsol YPF said it plans to take full legal action against Argentina over the measure, which it described “to be manifestly unlawful and gravely discriminatory”.

Repsol YPF added that it will carry out all pertinent legal actions to preserve the value of all its assets and the interests of all of its shareholders. It also said that "the unlawful expropriation of YPF does not affect the growth capacity of any of Repsol’s businesses outside Argentina".

Spain has summoned the Argentine ambassador to discuss YPF, according to media reports.

The amount of compensation Repsol will receive following the government's move to nationalise the YPF unit is expected to be determined by an Argentine tribunal. It is likely to be far less than Repsol's preferred value.

The takeover follows more than two months of government pressure on YPF to boost investment and output. The stake in YPF would give the Argentine government access to its shale oil reserves and natural gas production.

Argentina has an estimated 774,000bn cubic feet (bcf) of technically recoverable reserves of natural gas, the third-largest behind China and the US, according to the US Energy Information Administration (EIA).

Analysts at investment bank RBC Capital Markets have reduced its price target for Repsol YPF to €17 from €20 on the back of the news.

“Our price target reflects the fact while the re-nationalisation is not a done deal, we believe the requirement of a two-thirds majority is unlikely to be an obstacle and taking immediate administrative control is an aggressive move,” it said.

The analysts added that although Repsol has told shareholders it intends to carry out all pertinent legal actions to preserve the value of all its assets, Argentina already has more disputes pending against it at the World Bank’s International Centre for Settlement of Investment Disputes than any other country, following widespread nationalisations after its debt default in 2001.

Additional reporting by Al Greenwood and Leela Landress

By: Franco Capaldo
+44 (0)20 8652 3214

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