April 16th it started. Argentine President Cristina Kirchner decided to go forward and nationalize 51% of YPF S.A. (YPF), Argentine's main oil and gas producer and a subsidiary of Spain's (EWP) Repsol (OTC:REPYY). This obviously meant a huge plunge for the YPF ADR, as well as for Spain's Repsol. It also set up a reaction by Spanish politicians, talking about retaliation, though for now only on the economic and diplomatic field, while also asking for financial compensation.
However, things just got weirder. There seems to be a trend here. This week Bolivia decided to go forward and nationalize the Spanish-owned power grid company, Transportadora de Electricidad, right from under the noses of Spanish owner Red Electrica. And what's more, Bolivia did so in a very aggressive fashion, with the military taking possession of company installations.
These events leave two potential consequences on the table:
One is that Spain might do something crazy. Many of Spain's largest corporations have large subsidiaries in Latin America. Given the investment and values involved, Spain can hardly let this trend become some kind of normal thing to do. Telefonica (TEF) has a large South American presence. Banco Santander (STD) has a large South American presence. This reality might prompt Spain to do something crazy to put a stop to the trend, especially with Bolivia making use of military force to drive home its will.
The other, is that suddenly there's a lot more risk for companies with South American exposure. One simply cannot discount what will be the next crazy government, even democratically elected, that decides to nationalize something it feels is important. Traditionally Spanish companies are the ones with the largest exposure, but there's not the very real need to go through any holdings and see if there's any relevant surprises to be had. Portuguese Portugal Telecom (PT), for instance, also has a large subsidiary in Brazil.
As if the world didn't have enough problems, a new troubling trend emerges with Latin America countries seemingly nationalizing companies left and right. Spain's largest companies are the most affected, but this trend can conceivably hit any company with a large Latin America exposure, so it might make sense to go through holdings and watch for the exposure to the phenomena. If you find U.S.-quoted companies with large Latin America exposure, please leave them in the comment area.