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Repsol Would Get $5 Billion in Bonds in YPF Deal

Repsol Would Get $5 Billion in Bonds in YPF Deal
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Τρι, 26 Νοεμβρίου 2013 - 18:02
Argentina would pay Repsol SA $5 billion in Argentine government bonds to compensate the Spanish oil company for expropriating its controlling stake in YPF SA last year, according to people familiar with a proposal Repsol management has agreed to bring to a vote by its board.
Argentina would pay Repsol SA $5 billion in Argentine government bonds to compensate the Spanish oil company for expropriating its controlling stake in YPF SA last year, according to people familiar with a proposal Repsol management has agreed to bring to a vote by its board.

The dollar-denominated bonds would be secured by guarantees, and the company would face no requirements to reinvest any money in Argentina and no restriction on its ability to sell the bonds, these people said Tuesday. The interest-rate and others terms of the bonds were unclear.

Repsol's board is likely to accept the basic structure of the proposed agreement at its meeting Wednesday, these people said, because it has the implicit support of the Spanish and Mexican governments. A compensation deal would end an 18-month standoff between Spain and Argentina over the expropriation.

Spanish Energy Minister José Manuel Soria personally delivered an outline of the proposed deal on Nov. 15 to Mexican government officials and the chief executive of Petróleos Mexicanos, or Pemex, which has a 9% stake in Repsol, said a person familiar with the talks. Mr. Soria then accompanied top Repsol executives to a meeting with Argentina 's new economy minister in Buenos Aires , where the proposal won tentative approval on Monday. The chairman of Catalan bank Caixabank SA, Repsol's largest single shareholder, also attended that meeting.

Repsol Chairman Antonio Brufau, who had led efforts to fight Argentina 's nationalization of 51% of YPF last year, was absent from Monday's meeting. One person familiar with the matter said Mr. Brufau approved of the proposal but felt the company would make more progress toward a deal if other Repsol executives attended in his place. Following the expropriation, Mr. Brufau and Argentine government officials accused each other of mismanagement and bargaining in bad faith.

One issue for Repsol, and a potential sticking point, is whether its board members trust the guarantees underlying the offer, said a person familiar with the proposed deal. It wasn't clear Tuesday what guarantees were offered.

Investors welcomed the surprise announcement of the preliminary accord. Repsol shares shot up Tuesday morning. But some analysts cautioned that, without knowing all the terms, it would be difficult to fully value the deal or predict how quickly Repsol may be able to sell the bonds.

The preliminary agreement "is a step in the right direction, [but] we feel Repsol could still extract better terms for its minority shareholders," said Alejandro Demichelis, an analyst with Exane BNP Paribas.

A final agreement on compensation to Repsol could help patch up relations between Spain and Argentina , which were strained when the South American country nationalized 51% of its largest energy company. The YPF expropriation prompted the European country to try to limit its purchases of Argentine biodiesel. Repsol, which has said its stake in YPF was worth more than $10 billion, also launched an arbitration claim against Argentina with the World Bank.

The preliminary agreement also follows a cabinet shuffle last week by Argentine President Cristina Kirchner, whose government is seeking to mend ties with foreign creditors at a time when the country faces foreign-currency shortages and limited borrowing options. In recent elections, key candidates from Mrs. Kirchner's leftist faction fared poorly, raising hopes that a new pro-business administration might succeed hers when her term ends in 2015.

On Monday evening, Repsol, which currently has a 12% stake of in YPF, said in a statement that its board would analyze the proposal Wednesday and make a decision based exclusively on what the board considers best for the company and its shareholders. If Repsol ratifies the deal, both it and Argentina would drop all lawsuits in the case.

In June, Repsol rejected a Pemex-brokered compensation offer that the Argentine government valued at $5 billion. Repsol's board said the offer, which included a stake in a company that would hold land in YPF's large oil and gas field, Vaca Muerta, didn't fairly value the assets. And Repsol would have been required to reinvest about $1.5 billion of the compensation in Argentina .

A compensation deal would help Repsol grow outside its main production areas in Latin American and northern Africa . Repsol is looking to buy assets worth up to $10 billion in stable market economies such as the U.S. or Canada .

The Spanish company is among the integrated European oil companies most heavily exposed to frontier oil-exploration areas such as Morocco and Sierra Leone , according to a recent Bernstein Research report. Working in those countries carries the promise of more profitable oil production as well as risks.

For example, civil war and armed assaults have disrupted output in Libya , depressing the company's third-quarter profit.

By expanding in countries such as Australia , Norway and the U.S. in recent years, Repsol has been seeking a better balance of production-growth potential and risk.

Repsol shares have recovered more than 50% since hitting a low in the summer of 2012 following the expropriation.

Juan Montes in Mexico City contributed to this article.

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