What was Argentine president Cristina Fernández thinking? Her government’s renationalisation of 51 per cent of local oil company YPF by expropriation is bad for Argentina and a shocker for Spanish oil group Repsol, which could lose nearly all of its 57 per cent stake. Buenos Aires claims that YPF was not investing enough. That, and the progressive withdrawal of YPF licences, smacks of efforts to depress its share price, down 35 per cent this year – not that there is talk of Buenos Aires paying for the stake. Nor is the problem with Repsol: it lies with Ms Fernández’s populist energy policy of keeping domestic prices low, forcing YPF to import refined products and gas and sell them at a loss.
Repsol will fight the “illicit” move with backing from Madrid and the European Union. But Spain must avoid the local interests of Telefónica becoming the next target. Those of Spanish banks BBVA and Santander and fashion group Inditex are unlikely to be affected. But Repsol investors fear the worst and have taken the first loss: YPF and Repsol shares fell 7 per cent and 6 per cent, respectively, on Tuesday. The latter are down nearly a third this year. Debt holders, meanwhile, must secure their rights. YPF’s credit risk will slide under state control. The credit rating of Argentina is well below Repsol’s investment grade.
Buenos Aires is unlikely to muster the $10.5bn (about 2.6 times carrying value) the Spanish group claims for its stake. Repsol would then have to write it down, lifting group gearing by 400 basis points to 42 per cent by year-end, Macquarie estimates. The oil group also loses a quarter of its operating income, and loss of the YPF dividend will limit Repsol’s capital flexibility.