* Repsol shares fall, Spain warns of economic reprisals
* Argentine official says “the state is the solution.”
* Repsol declares the “Battle is not over;” Argentina balks
at price
* Moody’s downgrades YPF, ratings remain on review
By Tracy Rucinski and Julien Toyer
MADRID, April 17 (Reuters) – An incensed Spain threatened
swift economic retaliation against Argentina on Tuesday after it
unveiled plans to seize YPF, the South American nation’s biggest
oil company which is controlled by Spanish energy group Repsol.
Madrid called in Argentina’s ambassador over the
nationalization order on Monday by Argentina’s combative
president, Cristina Fernandez, a move that sent Repsol shares
tumbling but delighted many ordinary Argentines.
“I must express my profound unease. It’s a negative decision
for everyone,” Spanish Prime Minister Mariano Rajoy said.
Speaking at a World Economic Forum meeting in Mexico, he
said the Spanish-controlled company was being expropriated
“without any justification.”
Spanish Industry Minister Jose Manuel Soria promised
“consequences” in the coming days. “They will be in the
diplomatic field, the industrial field, and on energy,” he said.
Spain is due to consider its next steps at a cabinet meeting
on Friday. But it appeared to have limited leverage over
Argentina, which has proven impervious to pressure in the past.
Repsol said YPF was worth $18 billion as
a whole, and that it would seek compensation on that basis.
As of Tuesday’s market close, YPF’s market capitalization
was $10.4 billion, according to Reuters data.
Argentina’s Deputy Economy Minister Axel Kicillof said
Buenos Aires would not agree to Repsol’s valuation. ” W e’re not
going to pay what they say,” he told the Senate committee
kicking off a debate over the expropriation bill.
“We need YPF’s objectives to match Argentina’s objectives
… The state is the solution,” Kicillof said.
He said that securing control of YPF was central to
Fernandez fulfilling her reelection campaign promise of
“deepening the model” for her state-centric policies.
A surging fuel import bill has pushed production to the top
of Fernandez’s agenda at a time of worsening state finances in
Latin America’s No. 3 economy.
Repsol, whose shares fell 7.5 percent in Madrid on Tuesday,
said the takeover was unjustified and vowed to defend its
interests.
“This battle is not over,” company Chairman Antonio Brufau
said. “The expropriation is nothing more than a way of covering
over the social and economic crisis facing Argentina right now.”
Late on Tuesday, Moody’s Investors Service said it was
downgrading YPF and keeping the company’s ratings on review.
European Commission President Jose Manuel Barroso urged
Argentina to uphold international agreements on business
protection with Spain. “I am seriously disappointed about
yesterday’s announcement,” he said in Brussels.
British Foreign Secretary William Hague added to the chorus
of condemnation, saying: “This goes against all the commitments
Argentina has made in the G20 to promote transparency and reduce
protectionism.”
Argentina and Britain have been locked in a diplomatic
battle over oil exploration in the Falkland Islands for months.
RESOURCE NATIONALISM
Spanish media slammed the expropriation, believed to be
biggest nationalization in the natural resources field since the
seizure of Russia’s Yukos oil company a decade ago.
La Razon newspaper carried a photograph of Fernandez on its
front page in a pool of oil with the headline: “Kirchner’s Dirty
War”, a reference to her full name.
El Periodico spoke of “The New Evita”, noting Fernandez
announced the nationalization in a room dominated by a large
sculptured image of Eva Peron, the first lady of Argentina from
1946-1952 who is revered by many Argentines as a champion of the
poor.
Repsol’s Brufau said he suspected nationalization of YPF was
imminent when he tried to contact Fernandez last Friday and was
told that the president “was angry” and did not want to speak.
YPF has been under pressure from Fernandez’s center-left
government to boost oil production, and its share price has
plunged in recent months on speculation about a state takeover.
Spanish investment in Argentina may now be at risk after the
move on YPF. In the “reconquista”, or reconquest, of the 1990s,
newly privatized Spanish businesses bought Latin American banks,
telephone companies and utilities. “Reconquista” refers to the
Spanish conquest of the region 500 years earlier.
Foreign investors are key to helping develop one of the
world’s largest reserves of shale oil and gas recently
discovered in the Vaca Muerta area of Argentina.
Investors have pushed up the cost of protecting themselves
against the risk of Argentina defaulting on its debt. Since
February, Argentine credit default swaps have cost more than
those of Venezuela, whose credit is also considered risky.
Argentine bond spreads widened to almost three times the
average of the JPMorgan Emerging Markets Bond Index Plus (EMBI+)
, showing a decline in confidence.
ACE UP ITS SLEEVE?
Some analysts questioned whether Argentina might have an ace
up its sleeve in the form of a new partner such as China
Petrochemical Corp (Sinopec Group).
A Chinese website said Sinopec was in talks with Repsol to
buy YPF for more than $15 billion, although other sources said
the nationalization move would probably get in the way of such a
deal. Sinopec dismissed the report as a rumor.
Fernandez said on Monday the government would ask Congress,
which she controls, to approve a bill to expropriate a
controlling 51 percent stake in YPF by seizing shares held
exclusively by Repsol, saying energy was a “vital resource”.
Fernandez, who still wears the black of mourning 18 months
after the death of her husband and predecessor as president
Nestor Kirchner, stunned investors in 2008 when she nationalized
private pension funds. She has also renationalized the country’s
flagship airline, Aerolineas Argentinas.
Such measures are popular with ordinary Argentines, many of
whom blame free-market policies such as the privatizations of
the 1990s for the economic crisis and debt default of 2001/02.
