Repsol to fight Argentina’s government for fair value of YPF

18 April 2012 13:49  [Source: ICIS news]

By Franco Capaldo

Repsol to fight Argentina YPF takeoverLONDON (ICIS)--Spain-based Repsol on Wednesday said it will fight "tooth and nail" to receive what it thinks is a "fair price" for its stake in oil and gas firm YPF if Argentina succeeds in taking over a controlling interest.

A decree has been approved by Argentina which led to the immediate appointment of a government minister as controller of YPF, with all the powers of the board of directors.

A bill is now due to be presented to the country’s senate to allow the government to take over 51% of YPF shares, owned by Repsol, but a timetable for when this will happen is not yet known.

Kristian Rix, deputy director of international and financial media at Repsol, said the group would fight "tooth and nail to get the fair price for what the Argentina government has taken from us".

The company would not be able to take legal action until the bill has been approved by parliament. However, if this happens: "Repsol will resort to international arbitration tribunals and seek to press individual charges, as well as class actions, anywhere and everywhere that can get us a result," Rix said.

Repsol owns a 57.43% stake in YPF, but the measures taken by Argentina’s government would leave the Spanish company with only a 6% stake.

The amount of compensation Repsol will receive following the government's move to nationalise YPF is expected to be determined by an Argentine tribunal.

According to YPF bylaws when it was privatised, in a takeover bid situation the highest price of four possible calculation criteria would be paid. In this instance, the whole of YPF is valued at around $18.3bn (€14.9bn). Using this calculation, Repsol's 57.43% stake in YPF is valued at around $10.5bn, which is likely to be far less than the group's preferred value.

Investment bank UBS on Wednesday said that Repsol will move to attempt to recover significant value for YPF and estimated that the group will be looking for $18bn or more.

“We think even this understates the true value of the asset as the potential for the company has never been fully reflected in the shares,” it added.

UBS also said that the process of compensation to Repsol will be long, as “Argentina is no stranger to international litigation and arbitration”.

Earlier on Wednesday, Spain's industry minister Jose Manuel Soria on national television raised the chance of a trade war between the two nations, after saying his country was considering unspecified commercial and diplomatic measures against Argentina.

On Tuesday, Spain's Prime Minster Mariano Rajoy said the expropriation of YPF harms both Spain and Argentina. Rajoy said it is a negative decision for Repsol YPF, "which has seen itself expropriated without any grounds or economic reasoning to explain what has happened." He added: "This action will greatly affect Argentina's international reputation."

"You can absolutely rest assured that I will be working to ensure that does not happen because it would not be fair; put another way, it would be utterly unfair," he had said.

On Monday, Jose Manuel Garcia Margallo, Spain’s minister for foreign affairs and cooperation, said the Spanish government would “take every step it deems necessary to defend the legitimate interests of Repsol and of all Spanish companies and interests overseas”.

Spain will consider its next steps during a cabinet meeting on Friday.

On Tuesday, Repsol YPF’s shares plummeted after 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.

In light of this, NYSE Euronext halted trading on Tuesday of YPF depository receipts. Meanwhile, Fitch Ratings downgraded YPF to a B from a B+, and lowered the company's ratings outlook to negative from stable. Fitch said that government ownership would likely make YPF more inefficient and less profitable.

Analysts at investment bank RBC Capital Markets reduced its price target for Repsol YPF to €17 from €20 on the back of Argentina’s measures, while Moody's Investor Services downgraded YPF late on Tuesday.

At 12:15 GMT on Wednesday, Repsol YPF’s shares in Madrid were trading at €16.24, down 1.13% from the previous close

Additional reporting by Al Greenwood and Leela Landress

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

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