The board of Spain’s Repsol is holding a meeting in Madrid that is expected to see approval for a definitive $5 billion settlement from Argentina over assets seized by the Buenos Aires government.
If approved, the agreement would draw a line under a two-year
battle for compensation waged by Repsol since Argentina expropriated
its majority stake in former state player YPF in April 2012.
Though the settlement first mooted in November is half of what Repsol was initially
demanding, the Antonio Brufau-led oil major is said to be eager to end a rocky chapter in its
history and avoid a drawn-out legal fight, according to Reuters reports.
A source involved in the talks told Reuters last week that
Argentina had offered dollar-denominated Argentine bonds with a face value
above the agreed $5 billion compensation to account for the discount attached
to government bonds since the country defaulted on international debt in 2002.
The Argentine government has also agreed to issue additional
bonds to compensate Repsol if the market price of the bonds falls below the
agreed compensation, the source added.
Representatives of Repsol's largest shareholders - lender La
Caixa, builder Sacyr, Mexican state-owned oil company Pemex and Singapore state
investor Temasek Holdings Pvt Ltd - are all expected to back the deal.
Following boardroom approval, shareholders will be asked to
give the green light at an annual general meeting in March or April. The deal
also needs approval from the Argentine Congress, which could come in May.
"We see possible settlement with YPF as strongly
positive for (Repsol's) ratios and valuation, but part one of a multi-step
process which provides cash to fund M&A," said RBC Capital Markets
analyst Peter Hutton.
Repsol is in the middle of a four-year plan to boost its
international exploration and production business to compensate for the loss of
YPF, which had accounted for over half of its output.
It has said it could sell its 30% stake in Spanish power
firm Gas Natural Fenosa to help fund a purchase in North America.