Following my early warning on the takeover of YPF Sociedad Anonima (YPF) by the government of Argentina, I have been following and pretty amazed by the scrambling on the south side of the Rio de la Plata to keep the financial ship of state afloat. The Argentine government is desperate for hard currency - U.S. dollars - primarily to pay for energy imports during the coming winter. The main purpose of the YPF nationalization was to force in-country energy exploration and production to cut into the country's $10 energy import bill. The Argentine government has taken numerous steps over the last several months to attempt to stem the flow of dollars in private hands out of the country. Here are a few of the more interesting rules/decrees:
- Argentina refused to accept Argentine pesos from the Uruguay central bank during the summer holiday season. Historically, Argentine vacationers exchanged money in Uruguay and after the season Uruguay exchanged the pesos with Argentina for dollars.
- Argentina eliminated automatic import license renewals for companies shipping goods from neighboring countries. Now exporters in Brazil, Paraguay and Uruguay must go through a lengthy license process to ship goods to Argentina. This has resulted in some significant shortages of certain goods in Argentina but has kept dollars from leaving the country.
- Travel agents who sell vacation packages must now report the source of the funds used to pay for the vacations - dollars, pesos or credit cards. Many Argentines are desperate to get their money into dollars and out of the country.
One way it seems that rich Argentine citizens are getting money out of the country is to buy shares of stock or bonds in the local currency and then taking those shares to New York and selling them for dollars - called cash with pay-off. Today I read that the going exchange rate in New York is just over 6 pesos to the dollar. The official exchange rate in Argentina is 4.45 pesos to the dollar. On the local "blue" market - no black market in Argentina - the exchange rate has reached 6.17. The bottom line is that wealthier citizens of Argentina are very worried about the local currency and government officials continue to claim there are no problems.
For U.S. investors, the way to profit from a collapse in the official peso rate would be to short sell the ADR shares of Argentine listed companies. If things get ugly for the country to pay for energy over the winter - June through September - both the exchange rate and the Argentina stock values could move in the right direction for short sellers. The the most active ADRs trading on the U.S. exchanges are:
- Banco Macro SA (BMA)
- BBVA Banco Frances S.A. (BFR)
- Grupo Financiero Galicia S.A. (GGAL)
- Petrobras Argentina SA (PZE)
- Telecom Argentina S.A. (TEO)
Watch out for dividend payment dates, because these stocks tend to show very high yields. On the flip side, with Argentina based companies there is a big difference between declaring a dividend and being allowed to send the money out of the country to pay foreign shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.