Argentina YPF shares end up on state takeover talk

YPF changes: Cristina Fernandez de Kirchner honors fallen soldiers earlier this month

The shares of Argentina's biggest energy company, YPF, closed 7.4% higher on Thursday ahead of an expected government takeover of the company.

YPF's stock has shed about 27% since the start of the year, hurt by media reports saying the government will either expropriate or buy a controlling stake in the company, which is majority owned by Spain's Repsol, Reuters reported.

Some local media say President Cristina Fernandez will make an announcement on Thursday evening regarding YPF's future, but government officials did not confirm this.

The company has come under fierce state pressure to increase oil and gas production as costly fuel imports eat into Argentina's trade surplus. Fernandez nationalized private pension funds and the nation's flagship airline in 2008.

YPF's shares ended up at 123.00 pesos. Traders said a possible government intervention has already been priced in and investors are now trying to find a way to profit.

"The issue is what price will be paid for the company," Guillermo Curutchet, an analyst at brokerage Sudamericana de Finanzas, told the news wire. "It's speculation at this point, but when the final announcement is made, investors should buy (the shares) because they will rise initially."

Spain's industry minister, Jose Manuel Soria, alluded to Repsol's predicament in Argentina on Thursday.

"If somewhere in the world there are gestures of hostility toward Spanish companies' interests, the government interprets them as hostility toward Spain," Soria said, without referring specifically to YPF. "And if there are gestures of hostility, they will have consequences."

The Clarin newspaper initially reported that the government sent a bill to Congress to expropriate more than 50% of YPF's shares. But it later changed that to say the government "may have decided" to send the proposal.

No official bill from the executive branch has been sent to Congress and a high-level source told reporters that at least five different drafts relating to YPF were being studied.

A Repsol spokesman told Upstream he had no comment on the situation. A YPF spokesman did not respond to a request for comment.

Several of Argentina's provincial governments have stripped YPF of some key production licenses recently, citing insufficient investment. YPF was privatized in 1992 after 70 years as a state company.

Repsol, which holds a 57 percent stake in the company, has been gradually reducing its holdings as it frees capital to invest in other emerging markets such as Brazil. Argentina's Eskenazi family holds 25.5 percent.

"Traders are expecting a government announcement and speculate that it will be a mixed (public-private) company," said Jorge Alberti, an analyst at online brokerage ElAccionista.

Pro-nationalization posters were plastered on walls in Buenos Aires. One of them read: "YPF - neither private nor foreign. 100 percent public; 100 percent Argentine."

Juliana Abella, managing editor and Argentina analyst with IHS in London, told Upstream the debate is “quite serious” but “almost impossible” to predict.

She points to minimal little dialogue and transparency between even top personnel in YPF and the government.

In the face of declining production and an expanding demand for costly imports, the government has insisted that YPF and other companies have failed to live up to their commitments to improve the country’s energy production.

Oil-producing provinces, too, want more of a say in how oil development proceeds in their respective areas, she said.

But Abella said she does expect majority owner and Spanish oil giant Repsol to put up a prolonged legal fight over the withdrawal of its concessions. It has already filed suits on some of the pulled leases.

While governments have the right to revoke them, Repsol may build its case around the circumstances in which the leases were pulled, she says.

Though investors and traders have balked at the seemingly abrupt changes of circumstances in Argentina, Abella still believes the potential rewards are great enough for the government to find participants for its new mixed enterprise and “would find ways to offer terms that would attract investment.”

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