Argentinean oil producer Yacimientos Petrolíferos Fiscales (
YPF
,
quote
) is trading lower again today after yesterday's precipitous
sell-off following the decision by an Argentinean province to
revoke YPF's oil concessions.
Already this year, six provinces have confiscated YPF's
concessions. As a result of this government interference, the
stock has fallen 33% on the year.
Previous confiscations were of little material effect to the
company as they were from regions with little hydrocarbon
production. However, the most recent revocation included the
Chubut concessions which represent about
10% of the company's domestic output.
Compounding the issue, local newspapers in Argentina reported
a rumor that the government is planning to
nationalize the country's oil and gas
industry.
Currently, YPF's largest shareholder is Repsol (
REPYY
,
quote
) with 57.4% of the company. In order for the government to
nationalize YPF, Argentina would have to purchase Repsol's
stake.
While such a maneuver would seem like nothing more than
journalistic embellishment in other emerging markets, under the
Cristina Kirchner administration, a nationalization of the oil
industry seems all-too plausible.
After last month's attempted takeover of oil concessions in
the Falkland Islands, combined with last week's change in the
central bank's mandate -- which
The Economist
derided as a move to
make the central bank the government's "piggy bank"
-- populist ploys like rhetoric to re-nationalize previously
state-run YPF have become the norm in Argentina.
Overt appeals to populism under Kirchner are often
indicative of more serious underlying problems
; in this case, the Argentinean economy is struggling with severe
inflationary pressure.
The Economist
claims that "the gap between the official exchange rate and the
rate in the swap market has
widened to nearly 20%."
Argentina (
ARGT
,
quote
) will suffer as long as President Kirchner continues to promote
a hostile business climate towards both foreign and domestic
companies, while neglecting the very real inflationary threats to
the economy.
Given that neither President Kirchner nor anyone else in her
administration has indicated a willingness to backtrack on these
positions, YPF, ARGT, and REPYY will all likely remain under
pressure.
Traders should consider shorting both YPF and ARGT, as these
entities are unlikely to move upwards until the Argentinean
government changes tack.
