YPF Sociedad Anonima (YPF)
(All) shareholders expropriated
Where now? After yesterday’s announcement that Argentine President Ms
Cristina Kirchner submitted to the Senate a proposal to expropriate 51% of
YPF’s capital (all to come from Repsol), we think the main question to be asked
from a YPF minority shareholder point of view is whether the ‘new’ YPF will be
able to create fundamental value, and the implications of the interests of the
‘new’ stakeholders. By taking a detailed look at the proposed new regulation, we
find it difficult to argue for clear intrinsic value creation. We therefore downgrade
to Underperform. Our new target price of $11/ADR (from $30/ADR) is an
average of three worst case scenarios that could arise. We provide detail and
thoughts on the proposed new legislation in this note.
From whom, to whom and how much? If the expropriation goes ahead, YPF
share capital will be approximately 51% government (of which 51% national
government and 49% provinces), 26% the Petersen group (unchanged), 17%
free-float (unchanged), and 6% Repsol (down from 57%). The price of the
expropriation is to be set by the National Appraisal Tribunal, in accordance to
law 21499 of 1977. This law, on its turn, mentions indemnity will only
comprehend the ‘objective’ value of the assets. Repsol has officially declared it
considers the announced measures to be unlawful and gravely discriminatory,
and that it will carry all pertinent legal actions.
Value for stakeholders vs minority shareholders. Taking a detailed look into
the proposed legislation, we find it difficult to argue for clear intrinsic value
creation. Sentences like ‘Maximization of investments and capital employed with
the aim to provide hydrocarbon self-sufficiency’ and ‘Protection of the interests
of the consumer with regards to price...’ will likely bring into question the issues
of whether capital will be deployed profitably, and whether downstream prices
continue to increase. Overall, investment climate is likely to deteriorate in
Argentina, impairing other companies confidence into deploying capital in the
country. This could also have a direct impact on YPF when it comes to farm-
outs and securing oil services capacity to develop shale resources.
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