Billionaire Clan's Oil Bonds Roiled as Macri Slashes Subsidies

  • Pan American Energy bonds post worst loss since Macri elected
  • Government cut subsidies that benefited the company on Jan. 6

Bond investors in Pan American Energy LLC, Argentina’s biggest oil exporter, are turning out to be the biggest losers of President Mauricio Macri’s rise to power.

The company, which is run by the billionaire Bulgheroni family, has seen its $500 million of notes due in 2021 tumble 4.4 percent since Macri’s victory on Nov. 22, the steepest drop in Argentina’s corporate debt market, data compiled by Bloomberg show.

Since his election, Macri has started to phase out subsidies put in place by predecessor Cristina Fernandez de Kirchner, which allowed Pan American Energy to sell its oil at a price that was significantly higher than international levels. On Jan. 6, the government cut the price of the company’s crude by 12 percent to $54.90 a barrel and said plans to eliminate the gap with overseas markets. On Wednesday, Brent oil, a global benchmark, fell below $30 a barrel for the first time since April 2004.

“The market is starting to price in a different risk premium for exposure to each kind of crude produced in the country,” said David Tawil, president and co-founder of distressed hedge fund Maglan Capital. “Everything oil-related will trade down in sympathy to the extent that the open-market price of oil goes down.”

Pan American Energy’s press office didn’t respond to phone messages and e-mails seeking comment on the subsidies and the company’s bond prices.

London-based BP Plc owns 60 percent of Pan American Energy while Bridas Corp., a venture between the Bulgheronis and China’s CNOOC Ltd., has a 40 percent stake. Carlos and Alejandro Bulgheroni are Argentina’s richest men.

In December, Pan American Energy stopped drilling at its Cerro Dragon field in Chubut province, where the company generates two thirds of its output. In a Jan. 11 letter to the government, the oil producer said it will have to cut production and jobs if doesn’t get an export subsidy.

In late 2014, in a bid to erase a $6 billion energy deficit and protect jobs in the industry ahead of presidential elections, Argentina increased domestic oil prices to protect drillers from a plunge in overseas markets. The subsidy means that Argentine motorists pay about 32 percent more to fill their tanks than neighbors in Brazil.

Argentina’s rig count fell by 10 to 81 in December, the lowest since November 2013, according to Baker Hughes. That number is set to fall further in part after Pan American Energy ordered mandatory holidays for employees last month.

The company’s bonds have now dropped to a 23-month low of 95.74 cents on the dollar, pushing yields up to 8.9 percent as of 12:50 p.m. in New York.

“The decrease in the local price, along with falling international oil prices and less incentives for foreign companies to invest in the industry in Argentina” are punishing Pan American Energy’s notes, said Richard Segal, a London-based emerging-market analyst at Manulife Asset Management.

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