I caught the news that Argentine oil company YPF S.A. (YPF) had received permission for the company's ADR shares to again start trading on the NYSE. Argentina nationalized just over 50% of YPF in April. The Argentine government took its portion - about 51% - from Spanish energy company Repsol S.A. (OTCQX:REPYY). After the government takeover of YPF, about 25% of the outstanding shares continue to trade on the Buenos Aires stock exchange or as ADRs in the U.S.
I noticed something very interesting about the YPF share prices at the close on Friday - June 29. The U.S. ADR share price was $12.35. This is about 40% of the share value before Argentina started to make noise about taking over the former national oil company. On the exchange in Buenos Aires, the YPF shares had a nice day on the news of the NYSE re-listing and closed on Friday at 81.5 Argy pesos. At this time of year, Argentina is one-hour ahead of New York, time zone wise. When I compared the two prices, I noticed a serious discrepancy.
If you look up the current U.S. Dollar vs. Argentine Peso exchange rate you will see the dollar officially is worth about 4.5 pesos. This is the exchange rate you will receive from any bank or official money changer in Argentina. If you convert the 81.5 peso YPF share price to dollars at the official rate, the YPF ADR shares should be worth $18 even. That is 46% higher than where the U.S. traded shares are actually trading. The ADR price values the dollar-peso exchange rate at 6.6 pesos to the buck - a huge difference from the official exchange rate.
In recent months the Argentine government has clamped down on the ability to get and use U.S. dollars. There are dollar denominated bank accounts in the country, but it is nearly impossible to withdraw more than a token amount of U.S. currency. Non-official currency exchanges have dollars selling for between 5.5 and 6 pesos.
There are two ways to view this news. One is to see YPF shares as very undervalued and there is a short-term 50% upside potential. I do not disagree that YPF could be undervalued, but do not currently see a path where any value could be realized by investors. The second view is that the problems of the Argentine economy - as reflected in currency exchange rates - are viewed from New York as much worse than the government of Argentina believes or wants to let the local populace see.
For investors, YPF may never again pay a dividend, especially a dividend in dollars to U.S. ADR holders. If, over the course of the next few years, the company does start to ramp up energy production, the shares may start to improve in value, assuming the exchange rate does not get worse - a big assumption. Anyone still holding on to YPF shares should not expect a recovery anytime soon.
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