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Repsol Agrees to $5 Billion Deal With Argentina on YPF

Repsol Agrees to $5 Billion Deal With Argentina on YPF

Posted by Juan Gavasa on February 26, 2014

Repsol SA (REP) rose to the highest in a month in Madrid trading after the Spanish oil company’s board agreed to accept $5 billion for Argentina’s seizure of its YPF SA unit, ending a two-year dispute. Argentina will issue as much as $6 billion in bonds that the Madrid-based company can sell or hold until maturity, according to a Repsol filing yesterday to regulators. The debt won’t be satisfied until Repsol has received $5 billion, even if the bonds default, the company said after a board meeting yesterday.

“The deal looks positive versus expectations on two counts,” said Bertrand Hodee, an analyst at Raymond James Financial Inc. in Paris. Repsol will be able to monetize the assets if it chooses and it’s structured to maintain a minimum value of bonds, he said. Repsol climbed as much as 1.6 percent to 18.67 euros in Madrid, the highest intraday level since Jan. 22. The stock traded at 18.38 euros at 11.06 a.m. in the city.

President Cristina Fernandez de Kirchner’s government seized 51 percent of YPF in April 2012 after saying Repsol hadn’t invested enough. Ending the dispute may help attract investors to the country to develop some of the world’s largest shale fields. The agreement, less than the $10.5 billion in compensation Repsol initially sought, marks the end of two years of wrangling over the unit.

Menem Boom

“This is very positive,” YPF Chief Executive Officer Miguel Galuccio told reporters in Buenos Aires. “Repsol still has a 12 percent stake in the company, there should be a new dynamic now in the board. We should be able to leave this dispute in the past and focus on a more constructive future.”

On Feb. 21, Repsol took a 1.28 billion-euro ($1.8 billion) charge to reduce the value of the stake to 3.63 billion euros. The company removed the YPF suffix from its name in 2012, 13 years after acquiring the unit from Argentina and private shareholders at the peak of an economic boom under Argentine President Carlos Menem.

Repsol’s fourth-quarter net income adjusted for one-time items and inventory fluctuations was 251 million euros, compared with an average analyst estimate of 253 million euros and 517 million euros a year earlier. The company’s reserve replacement ratio rose above 275 percent, a record, while production was undermined by stoppages in Libya.

Argentina will hand over as much as $6 billion in nominal value of bonds to guarantee a minimum market value of $4.67 billion. The bonds will be held in an international clearing facility, Repsol said. If the company sells the securities and makes more than $5 billion, it will return the surplus to Argentina.

Pemex Role

The country will issue at least $3.25 billion of new bonds due 2024 with an interest rate of 8.75 percent and pay the rest with securities maturing in 2017 and 2033. Those notes trade at prices of 84 cents and 64 cents on the dollar respectively. Repsol officials will travel to Buenos Aires to sign the deal tomorrow, Argentine Economy Minister Axel Kicillof said yesterday at a press conference. The government will send a bill to congress to obtain approval on the debt sale, he said.

The deal took about three months to complete after an outline agreement was reached in November with the help of the Spanish government and officials from Petroleos Mexicanos, the Mexican state-owned oil company that is a Repsol shareholder and has expressed interest in developing Argentine shale fields.

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