April 18 (Bloomberg) -- YPF SA, Argentina’s largest oil company, plunged the most on record in Buenos Aires and New York after the government rejected Repsol YPF SA’s demand for $10.5 billion in compensation for the unit’s nationalization.
Shares fell 29 percent to 77.05 pesos in Buenos Aires, the most since 1994 when Bloomberg records begin. The company’s American depositary receipts plunged a record 33 percent to $13.12 as trading resumed today after a halt imposed April 16.
Argentina’s Deputy Economy Minister Axel Kicillof rejected Repsol’s compensation demand for its YPF unit and said the government will rely on “solid data” to value its takeover of 51 percent of its shares. President Cristina Fernandez de Kirchner moved to seize YPF this week, saying the company hasn’t invested enough in the South American country.
“Nobody knows how much the government plans to pay for the shares and that’s making people nervous,” Juan Jose Vasquez, an analyst at Bull Market Brokers SA, said by telephone from Buenos Aires. “Also, once the company is controlled by the state, its purpose won’t be maximizing shareholder value anymore.”
The government will ensure the profitability of the company “beyond Repsol’s expectations,” Kicillof, who Fernandez named to help lead YPF April 16, said at a Senate hearing yesterday. Repsol’s shares dropped the most in three years in Madrid today.
“The numbers that some executives talked recklessly about in valuing the company will be revised as we review the fine print and the secret information managed by the company,” Kicillof said, adding that YPF’s 2011 profit of 5.3 billion pesos ($1.2 billion) won’t be used for dividends and may be reinvested.
The appropriation damaged Argentina’s relations with Spain, its biggest investor, and put in question the future of the country’s largest taxpayer. Spain vowed to retaliate against Argentina’s exporters and Repsol Chief Executive Officer Antonio Brufau said he will use all legal means to win full payment for the oil producer.
The U.K. will work with Spain and other European Union countries to ensure Argentina upholds commitments to promote transparency and reduce protectionism, British Foreign Secretary William Hague said yesterday in an e-mailed statement.
Repsol fell 6.2 percent in Madrid, the most since February 2009, to close at 15.40 euros. That bought the loss in 2012 to 35 percent, the worst performance of the benchmark Euro Stoxx 50 index, which rose 0.5 percent since Dec. 31.
“A takeover sends a very negative signal to international investors and it could seriously harm the business environment in Argentina,” European Union foreign policy chief Catherine Ashton said yesterday in Strasbourg, France. “The measure creates legal insecurity for all European Union and foreign firms in the country.”
Trade between Argentina and the EU totaled about $26 billion last year, up from $21 billion in 2010, according to a report by Argentina’s national statistics institute. Spain is Argentina’s fifth-biggest destination for exports, after Brazil, China, Chile and the U.S., the report said.
Fernandez said the price paid for YPF’s shares will be determined by the National Appraisal Tribunal, a government-chartered body that assesses the value of nationalized goods.
“This will probably be a very cumbersome situation for Repsol,” said Maximiliano Castillo, a former manager of macro-economic analysis at Argentina’s central bank. “It’s a process that could last years if there isn’t a political agreement between both governments to speed it along.”
YPF’s market capitalization tumbled 35 percent to 30.3 billion pesos this week following Fernandez’s announcement. Trading in YPF’s American depositary receipts was halted on April 16 in New York after plunging 11 percent to $19.50. The securities are down from $34.68 at the end of 2011. Repsol’s shares have tumbled 32 percent this year as Fernandez stepped up pressure on its Argentine unit.
Repsol’s 57.4 percent stake in YPF was worth 4.1 billion euros ($5.4 billion) at the end of last year, the Madrid-based company said in an April 16 regulatory statement. The company is valued at $18.3 billion according to the formula set out in its bylaws, Brufau said.
Brufau said yesterday that Repsol had a written offer for its YPF stake that valued the company at $15 billion to $18 billion before the seizure. The potential sale was torpedoed because the Argentinean government refused to discuss it and the investors wanted the blessing of officials. China Petroleum & Chemical Corp., known as Sinopec, was the bidder, the Financial Times reported today.
The YPF proposal will be discussed in committee again today before heading to a vote on the Senate floor next week. The bill requires a two-thirds vote in both chambers of Congress to pass.
Fernandez justified the takeover by blaming Repsol for insufficient investment in new oil production that’s forcing the nation to import more energy. She may struggle to reverse that trend as investors said the moves deter them from buying Argentine assets.
“The message out of Argentina is very clear, and it’s ‘we’re going backwards,’” Peter Gaw, the head of oil, gas and chemicals at Standard Chartered Bank, said in an interview from Rio de Janeiro. “I think we’ll see a very stagnant period of mergers and acquisitions in Argentina.”
The Spanish government will decide on measures affecting Argentina’s trade and energy supplies as well as exerting pressure through diplomatic channels, Industry Minister Jose Manuel Soria said today in a television interview. The cabinet is due to meet next on April 20.
The EU postponed a meeting with Argentine officials scheduled for this month to weigh its response to the move, European Commission spokeswoman Pia Ahrenkilde Hansen said. Repsol’s first option for winning compensation may be an appeal under an investment treaty between Spain and Argentina, the commission said.
Argentina needs an estimated $25 billion a year during the next 10 years to develop South America’s biggest shale field, the Vaca Muerta, where YPF discovered reserves forecast to hold as much as 23 billion barrels of oil equivalent.
Argentina’s oil reserves fell about 18 percent from 1998 to 2010, according to the Argentine Oil and Gas Institute. Price caps on oil exports also made investments less attractive.
Repsol is responsible for about 54 percent of the country’s decline in reserves and production since buying YPF in 1998, according to a copy of the Argentine bill.
“We can’t give ourselves the luxury of hoping that a multinational company will sit down with us and ask ‘what are you going to do with your gas, with your oil production, with your fuel prices?’” Kicillof said.
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