We now have a few more details about the deal. Reports are that the coupon on the bonds will be between 8.25% and 8.75%. It also looks to have been an intergovernmental negotiation brokered by the CEO of Pemex, Emilio Lozoya. President Fernández called President Peña to congratulate him on Lozoya’s role.
In short, it looks like something out of the 1970s. For more on what expropriation disputes looked like back in the day, go read this book!
So who won this old-fashioned intergovernmental natural-resource slugfest? Raul Gallegos at Bloomberg has a great analysis:
So, Repsol clearly lost this fight so far. But who has won?
- Fernández: Argentina’s president can sell a deal to a domestic audience as a political victory. Forcing Repsol to accept less than half what it demanded and reportedly offering to pay the company in 10-year bonds makes the populist leader appear to be a strong negotiator. Coming close to ending the conflict not only helps counter critics who argued that the government stole YPF assets, but also suggests Fernández is serious about turning around the country's troubled energy business.
- Carlos Slim: The Mexican billionaire, the world’s second richest man according to the Bloomberg Billionaires Index, controlled an 8.4 percent stake in YPF as of a mid-June 2012 filing. The price for YPF’s U.S.-listed shares has risen 192 percent since then and is now worth more than $989 million, according to Bloomberg data. YPF shares rose 13.3 percent from Monday through Wednesday, amid talk of a possible settlement between Repsol and Argentina’s government. Slim’s reported investment in YPF’s October bond issue suggests savvy investors buy when assets look scary and cheap.
- Chevron: Chevron Corp.’s decision to strike a controversial deal with YPF last year gained the company a foothold in Argentina’s famous Vaca Muerta shale formation -- the world’s second-largest shale gas and fourth-largest shale oil accumulation. This may have earned Chevron a Repsol lawsuit, but the deal now looks well timed. Supporting a troubled Argentina also gained the company goodwill among leftist politicians who could remain in power after Fernández leaves office.
- Pemex: Mexico’s decision to serve as a mediator between Argentina and Repsol is no disinterested gesture. Its troubled, state-owned oil company Petroleos Mexicanos, or Pemex, would also consider investing in the Vaca Muerta shale formation. Pemex’s 9.4 percent ownership of Repsol gave the Mexican company an incentive to help end the dispute that has hurt the Spanish company's fortunes. Bloomberg data show Repsol’s shares up 3 percent since talk of the potential YPF agreement became public.
- YPF: YPF is the biggest winner from Argentina and Repsol’s decision to bury the hatchet. YPF plans to invest $35 billion over five years to turn business around in the energy-import-dependent country. To do that, YPF needs strong partners such as Chevron and the ability to tap capital markets relatively cheaply. Settling a major nationalization dispute gives the troubled company easier access to both.
I would, however, quibble with two of Gallego’s conclusions. First, it is not clear that Slim was really perspicacious in picking up YPF stock; rather, he got it because the expropriation prompted the Eskenazi family to default on its debt to him; debt which was collateralized with YPF shares.
Second, Repsol did pretty well. My financial analysis is summarized here. But there are other, deeper reasons to believe that Repsol did pretty well ...