YPF was partially owned by Spanish Repsol (REP) but in 2012 President Cristina Fernandez de Kirchner decided to expropriate Repsol's holdings in YPF due to the aforementioned energy crisis in Argentina. In an attempt to make the company utilize its full production capacity and to raise investment in new exploration wells. Repsol stated that reduction in new investment was the result of anti-market policies.
It was not until a few weeks ago that Argentina finally decided that it had to compensate Repsol for this expropriation. Agreements between these two parties have been reached around the amount of $5 billion.
Attempt to Resolve the Crisis
Argentina has now different problems to resolve its energy crisis:
- Lack of dollars: It doesn't have funds to invest in YPF.
- Lack of market confidence: Its policies have been very restrictive to foreign firms and many of the most renowned companies operating in the country just decided to go away.
But the country has since tried to solve its differences with its creditors in order to enter international debt markets again. It remains to be seen if it can do it. On the other hand, YPF and Argentina have a huge asset which is the finding of one of the world's most important oil reserve banks in Patagonia. Exploration and operation of these wells has seduced many companies like Chevron (CVX) and Pemex (Petróleos Mexicanos). Conditions for operation and agreements remain to be seen.
YPF Bond Issue
Yesterday, YPF issued its first debt since the expropriation scandal. The company issued $500 million yielding 8.875% with maturity date 2018. YPF expects to raise more funds in future issues in order to continue exploration efforts and maybe to repay Repsol.
Argentina's economic situation is not the best as it struggles with an annual inflation rate of near 30%, a fiscal deficit and shortage of dollars. Moreover, it's not competitive and lacks infrastructure and strong institutions. Many people expect the situation to change after 2015, when a new government assumes power.
Investing in YPF's bonds may seem a risky move but with the country's aforementioned need for energy and foreign investment, I don't see YPF defaulting on its newly issued debt. In addition, we cannot forget the fact that it's the country's biggest producer and supplier of energy. With raising tariffs, YPF is poised to increase its earnings in quarters to come. State regulation in the energy sector is expected to be lifted in the short term in order to attract investment and encourage production.
I would at least consider these bonds as well as future issues from the company.