YPF and Repsol shares hit the skids
February 29, 2012 7:07 pm by Jude Webber
Repsol’s elation at another seriously big discovery in Brazil this week was short-lived.
Mounting fears that Cristina Fernández, Argentina’s president, could announce greater intervention in Repsol’s Argentine subsidiary, YPF, on Thursday at the annual opening of Congress have caused its shares to fall off a cliff, wiping more than $4bn off YPF’s value in less than a week. Antonio Brufau, Repsol-YPF’s CEO, is currently in Argentina waiting – like the market – for news.
In early afternoon trade in New York, YPF shares were down nearly 9 per cent – the biggest fall in 2 years – and there was no imminent sign of calm on the horizon.
Meanwhile, a 53 per cent dive in 2011 income announced on Wednesday has done nothing to help the performance of the group’s shares in New York and Madrid. In New York, Repsol’s American Depository Shares slid nearly 5 per cent. In Madrid, the company shares also took a pummelling, down 4.8 per cent.
How likely is it, then, that Fernández will nationalise YPF?
Not very, is the perceived wisdom. Leaving aside the question of where Argentina could find the money – potentially from pensions agency Anses, or central bank reserves, though that would probably be a bad idea for a government which is already scrambling to reduce its outgoings – any such move would be seriously damaging to investor sentiment, and despite a highly heterodox policy mix, Argentina is not Venezuela.
What else could Fernández do, then? Seek to step up government intervention in the company is the probable. “That wouldn’t be off-the-wall in the current climate,” said one YPF source, wryly.
Relations between the government and YPF have gone from chum to glum in recent weeks. Falling out of favour with a government that loves to have enemies and battles to wage is nothing new, but YPF has always been fondly regarded. Indeed, the bad boy in the oil sector has always been Royal Dutch/Shell, which has never recovered favour after trying to put up diesel prices in 2005 and incurring the wrath of then president Néstor Kirchner, who called a Shell boycott.
Yet YPF has been hauled over the coals in recent weeks for allegedly fixing diesel prices in a cartel, distributing hefty dividends and failing to invest either enough, or fast enough, to turn the country’s declining production around.
Some kind of public punishment looks on the cards. Ambito Financiero newspaper mused on Wednesday that YPF could be stripped of concessions in some areas where investment is deemed to have been too paltry – something provincial governors have already threatened. It suggested the government could otherwise seek to declare YPF a public good, in the national interest (as it has done to newsprint), which could pave the way for state intervention. That would require congressional approval, however.
Fernández has wasted no opportunity lately to lament the fact that Argentina is spending a fortune on energy imports. “How can it be,” she asked on Monday, “that we have to import $10bn worth (of fuel) despite having rigs and hydrocarbons fields?” The answer has a lot to do with poor policy.
But heavy-handed intervention could be a death-knell for the very investment in the sector that everyone acknowledges is necessary.
All eyes on Congress on Thursday at 11 a.m. local time (1400 GMT) then.