Argentina's YPF shareholders consider post-nationalization future


Argentina's YPF shareholders consider post-nationalization future


BUENOS AIRES -- Argentina's nationalization of its largest oil and gas producer, YPF SA, has minority shareholders pondering whether it makes sense to stay invested in a company whose new goal is to provide cheap energy to the masses.

Many investors who own YPF shares have already headed for the hills. YPF's American Depositary Shares have fallen about 33% this week since President Cristina Kirchner sponsored legislation to expropriate a 51% stake in YPF from its controlling shareholder, Spain's Repsol YPF SA.

The Spanish government and Repsol YPF, which will see its stake slashed to about 6% from 57.4%, have vowed to fight the takeover.

But the nationalization enjoys overwhelming support in Congress and Kirchner has already replaced YPF's management with government officials.

Argentina's Eskenazi family will keep its 25.5% stake as will the minority shareholders who own the company's 17.1% float traded in Buenos Aires and New York.

Deputy Economy Minister Axel Kicillof, who is the intellectual author of the takeover, said Tuesday that shareholders stand to benefit from state management.

"I'm convinced that what has to be done is take control, but not throw everyone out ... not throw out the private shareholders that have invested in YPF and who will see the company grow in the hands of a different, professional management," he said.

In testimony before the senate Wednesday, Daniel Montamat, a consultant and former Argentine energy secretary, said YPF's stock price is a good indicator of investors' outlook for the company.

"The bottom line is that the share price is going to reflect YPF; if it's set up to be autonomous and have an independent management or if it's a politicized YPF," he said.

If the stock's performance is any indicator it would appear that investors foresee a less than rosy future for YPF under state stewardship.

YPF's shares in New York were recently 2.3% higher at $14.75 on Friday, but are still down 57% in the year to date. Additionally, the company's market capitalization has shrunk to about $5.8 billion.

Adrian Mayoral, a trader at brokerage Mayoral Bursatil, said YPF has become an extremely speculative stock with violent price swings dictated by politics and headlines.

"The majority of the people going into [this stock] do so for trading or to hold it for very short periods," said Mayoral, who doesn't personally own the shares.

Founded in 1922 as a state company, YPF quickly grew to become the country's leading oil and gas company. But politics eventually ruined a company that in its early years was considered a successful example of state entrepreneurship.

The military government that ruled Argentina from 1976 to 1983 forced YPF to borrow vast sums to finance state spending, which hobbled its operations for years. The company also became bloated with thousands of superfluous employees who aggravated its delicate finances.

President Carlos Menem highlighted waste and inefficiency at the company when justifying its privatization in the 1990s.

YPF's new goal will be "to keep prices low to foment purchasing power" and "keep companies competitive" by providing consistently cheap oil and gas, Kicillof told senators this week.

Dividends are also a thing of the past as the government has made it clear that YPF will reinvest all of its net profit in the foreseeable future to boost production.

Meanwhile, analysts warn that the cash-strapped government will make the company pay for significant imports of refined products and natural gas this winter. Argentina's energy imports more than doubled to $9.4 billion last year.
Though its production has been declining for years, YPF could have a bright future if it can bring into production concessions to vast deposits of oil and gas locked away in shale rock.

YPF said in February it would require investments of $25 billion a year to develop its shale resources. Just where the government is going to find the money to bring shale oil and gas into production is the million dollar question.

Deutsche Bank equity analyst Marcus Sequeira said positive long-term factors such as shale gas and higher prices are overshadowed by near-term uncertainty.

"I don't think there is any reason to enter the stock right now because the situation is very fluid," said Sequeira, who has a hold on the stock.

Investors will stick around if they have believe that a company's management--either public or private--can create value by delivering earnings and sales growth, he said.

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