Repsol’s $5bn deal with Argentina ‘unexpectedly good’: UBS

27 February 2014 10:41 Source:ICIS News

LONDON (ICIS)--Spanish oil major Repsol’s $5bn compensation from the Argentinian government, following the expropriation of the company’s majority share in Yacimientos Petroliferos Fiscales (YPF), is an “unexpectedly good” settlement which gives Repsol an opportunity for transformation as it will effectively be debt free, investment bank UBS said on Thursday.

UBS said the $5bn deal is well over its own forecast of a $2.7bn settlement and noted Repsol could increase the total value of the deal to over $6bn if the company sold the remaining 12% stake it still holds in YPF.

"In general it hasn’t paid to be optimistic concerning Argentina… It's right to be cautious until cash materialises but we believe this looks a good deal."

The bank continued: "With the Shell LNG receipts and the YPF receivable Repsol is effectively debt free. This provides management with the opportunity over the next 2-3 years to complete the transformation of the company."

UBS said it expects Repsol’s credit rating to improve in the future and a change at the company’s dividend policy. It added it expects Repsol to carry out acquisitions in the upstream so it can increase production, cashflows and exploration opportunities. 

“We suspect that there is opportunity to make good acquisitions in a market long assets and short buyers,” said the bank.

As a result, UBS upgraded slightly Repsol’s 12-month share price target from €18 to €19 and maintained its ‘neutral’ recommendation on the shares. However, the bank described the company’s Q4 results as “weak” on the back of large exploration charge upstream and lower volumes in chemicals due to maintenance downstream.

By Jonathan Lopez