The market had to deal with another piece of bad news in addition to skyrocketing Spanish bond yields. The risk of government nationalization reared its ugly head as Argentina wants to nationalize the main oil company in the country.
Argentina’s president, Cristina Fernandez, said Monday that her administration had sent a measure to Congress seeking approval of a 51% government stake in YPF (YPF). YPF is majority-owned by Spain’s Repsol SA. Shares of YPF are down over 50% in the last three months.
The government and YPF have long feuded over why Argentina must import energy. The Kirchner government blames YPF for low production while YPF claims that the government's own interventionist economic policies are to blame for the energy problem.
Mrs. Kirchner's bill calls for YPF's shareholders to be compensated at a value to be determined by a federal tribunal. Repsol is the parent company and it is expected that they would receive around $18 billion to take full control of YPF, according to YPF's statutes and relevant Argentine law. The government would be required to make an offer for all of YPF's shares even if it wanted to obtain only 51% of them, according to the company's bylaws.
The nationalization has already impacted the share prices of other companies with properties or operations in Argentina.
For example, Pan American Silver (PAAS) has a large mine called Navidad that it would like to develop. The stock was down 2%. Hedge fund favorite Telecom Argentina was down 3.3%.