Kyle Bass' Last Bet
Bass' Thesis on Argentina
The hedge fund manager seems to believe that Argentina, which has been growing its GDP at an 8% year-over-year rate since the country defaulted its sovereign debt in 2002, mainly has a “bad reputation” problem. Despite Argentina's current harsh court battles with one of its biggest hold-outs – Paul Singer 's fund – the country has re-structured its debt through two successful debt exchanges (in 2005 and 2010) and managed to grow fast and lower its foreign currency debt to GDP ratio down to a historically low level.
That said, besides the aforementioned serious problems with its hold-out creditors, Argentina has two big issues that it must address as soon as possible: (1) Its inflation rate is running above the 20% mark and (2) its exchange rate is extremely overvalued, which is causing international foreign currency reserves to diminish.
Nevertheless, the government will change hands in 2015 and all presidential candidates with real chances are market-friendly ones. They have all expressed their willingness to make the much needed (and very much expected) public policy changes. Hence, a new government could boost investors' confidence and start the necessary reforms. Argentina has followed uncanny macroeconomic recipes for a decade now. Its time to start doing things the right way. If Argentina does so, investments will follow. A clear result will be related to Argentinean asset prices: They will soar. I think Bass is right, it's time to start investing. Before everyone else does.
My two favorite Argentinean stocks are related to the oil and gas space. Below, you may find a short review of them.
Petrobras Argentina (PZE), which is controlled by Brazil’s oil giant Petrobras (PBR), is one of the cheapest oil companies in the world and, given its size (its market capitalization stands at $1.3 billion) and strategic assets in one of the most promising shale oil and gas areas in the world, its a clear M&A target. Petrobras Argentina sells for 2014 2.5 times EV/EBITDA.
YPF (YPF) the now state controlled company was nationalized from Spain's Repsol's (REPYY) hands almost two years ago. Despite initial market discontent, the current management led by the former Schlumberger (SLB) executive Miguel Galuccio seems to be doing a great job at Argentina's biggest company. For its third quarter, YPF grew its EBITDA by 36% year over year and expanded margins up to 27.2%. In addition, the company was able to reverse the fall in its total hydrocarbon output, which increased by 2% year over year. YPF currently sells for 2.5 times 2014 EV/EBITDA and owns one of the biggest shale oil and gas reserves in the world, the Vaca Muerta formation.