Fernandez Taps YPF Nostalgia as Takeover Bid Boosts Support
President Cristina Fernandez de Kirchner’s surprise takeover of YPF SA (YPFD) is likely to boost her flagging popularity as Argentines rally behind the re- nationalization of the country’s biggest oil producer.
Fernandez’s support tumbled 18 percentage points to 44 percent in March after her October re-election as she limited imports and tightened exchange controls, said Mariel Fornoni, director of Buenos Aires pollster Management & Fit. Her decision to take control of YPF from Spain’s Repsol YPF SA (REP), which is up for a vote in the Senate today, tapped into support among 90 percent of Argentines who think energy and utility services should be government-controlled, Fornoni said.
“This is a society that supports state management and the decision on YPF has strong backing,” Fornoni said in an interview yesterday. “The government knew this decision would touch people’s emotions.”
Frustration over fuel shortages at gas stations and what Fernandez said was a lack of investment and falling oil production has helped unify support in both chambers of Congress for the government’s plan to take a 51 percent stake in YPF. Even Senator Carlos Menem, who sold YPF to investors in 1993 when he was president, said he’ll back the plan.
For decades a symbol of the open road, YPF is Argentina’s flagship company, once offering fuel to drivers directly in front of the presidential palace. The company, whose blue and white logo matches the colors of the Argentine flag, produces maps of the country’s highways and has 1,600 fuel stations stretching from the Bolivian border to Tierra del Fuego.
About 62 percent of the public backs Fernandez’s move to reclaim YPF, according to an April 19-20 survey by Poliarquia Consultores that was published in newspaper La Nacion. The poll of 1,115 people had a margin of error of 3 percentage points.
“Argentina is once again going to take control of a strategic resource that no other nation in the world has given up,” Interior Minister Florencio Randazzo said in a statement yesterday, citing Chile, Uruguay and Venezuela as examples of countries with state-run energy companies.
Premium auto fuel costs about 6 pesos ($1.36) per liter in Buenos Aires, compared to about $1.76 in Chile and $1.60 in Brazil.
Senate debate on the YPF bill started at 10:30 a.m. in Buenos Aires. Fernandez’s Peronist party and its allies control both houses of Congress. Approval by the Senate will send the legislation to the lower house.
“We need to have sovereign control of our resources,” Fernandez, 59, said in a speech yesterday, adding that she has never been more nervous than before her announcement about the takeover. “I am absolutely certain that this is the only road possible for us.”
Argentine officials haven’t said how the government intends to pay for the takeover. Economy Minister Hernan Lorenzino said April 20 that the government needs to wait for a valuation of the shares by a legal tribunal before taking further steps.
Officials at the presidential palace didn’t respond to messages left by Bloomberg.
Repsol’s shares have declined 19 percent since Fernandez’s announcement, which came four days after Jujuy province Governor Eduardo Fellner left a meeting with the president saying there was no prepared takeover plan. Repsol’s credit rating was cut by Standard & Poor’s last week to BBB- from BBB with a negative outlook. The outlook means the rating could be reduced further if the company doesn’t lower its debt, S&P said.
Repsol will do “whatever it takes” to defend its investment grade credit rating, spokesman Kristian Rix said yesterday.
While Congress debates the takeover, Fernandez had YPF executives expelled from their offices within hours of announcing her plan, appointing Planning Minister Julio De Vido and Deputy Economy Minister Axel Kicillof to run the company.
Kicillof, in a two-hour presentation to the Senate on April 17, said the “state is the solution” to boosting demand and production and that the YPF takeover would help the government sustain annual economic growth that has averaged 7.7 percent since 2003.
Yet signs of a slowdown have emerged. Shopping center sales rose 2.7 percent in March from a year earlier, the least in three years. Vehicle sales tumbled 3.6 percent in March from a year earlier. Consumer confidence fell 12.7 percent in April from March, the biggest decline since 2002. Argentines forecast consumer prices will rise 30 percent over the next 12 months, according to a poll by Buenos Aires-based Torcuato Di Tella University.
Growth may slow to 3 percent this year, according to the median estimate of seven economists surveyed by Bloomberg.
De Vido and Kicillof have met with officials from Petroleo Brasileiro SA (PETR4), Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM) to discuss future investments. South America’s second-biggest economy has lagged smaller economies including Peru and Colombia in recent years in attracting foreign investment.
Foreign direct investment fell 30 percent in the first six months of 2011, the biggest drop among major economies in the region, according to an October report by the United Nations Economic Commission for Latin America and the Caribbean. FDI fell to $2.4 billion through June 2011, compared with $44.1 billion in Brazil, $10.6 billion in Mexico and $7 billion in Colombia. That decline could worsen with the takeover.
“Locally-based manufacturers might decide that the risks to doing business in Argentina are too great and relocate to another part of the region,” Michael Henderson, an emerging markets economist at Capital Economics in London wrote in a report yesterday.
A doubling of fuel imports last year, which shrunk the trade balance the government depends on to bring dollars into the economy, may have led Fernandez to speed up her decision to take over the company regardless of the impact, said Camilo Tiscornia, a former central bank economist who now runs research company C&T Asesores in Buenos Aires.
“Energy is essential because it hits growth, it hits the fiscal balance because of subsidies and it hits trade, because YPF had to import a lot of energy,” said Tiscornia. “It’s logical that the government got itself entangled with the energy sector because it was disrupting the country’s macro-economy.”
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