Argentina And Its Latest Nationalization

| About: YPF Sociedad (YPF)
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The Argentine government recently expropriated a 51% stake in YPF Sociedad Anonima (NYSE:YPF) from Repsol YPF SA (OTCQX:REPYY).

In order to understand this move by the Argentine government one has to remember that energy subsidies were key to 2011 Cristina Fernandez de Kirchner's thrashing victory (she was reelected president, with 54.1% of the votes). To make a very long story short, the way oil and gas are subsidized is the following: The government buys oil and gas with the U.S. dollars that it takes from farmers.

The most likely trigger for the expropriation: The government found that the money it grabbed from the farmers was no longer enough to pay for the subsidies. The government now needs YPF to extract shale oil and gas (from Vaca Muerta in the Neuquen subbasin, and other fields), and sell its production at sale price.

Prices in Argentina are, to a large extent, controlled by the government; the Secretary of Domestic Trade, Guillermo Moreno, is a prominent figure in that respect. The government is also accused of grossly manipulating the country's statistics: Guillermo Moreno took control of the INDEC (the Argentine equivalent to the Bureau of Labor Statistics) in 2007. Since then the INDEC has been so discredited that a group of opposition lawmakers now publishes the so called "Congress index," the average of the results obtained by nine private agencies. Private agencies are subject to heavy fines and criminal prosecution if they publish the results of their research.

It is virtually impossible for the Argentine people to exchange their money for foreign currency. When a customer arrives to a currency exchange house, the clerk checks with the AFIP (the Argentine Tax Agency) whether the customer is allowed to buy foreign currency; the answer is, almost invariably, "No". Situations like this bring back sad memories of the Argentine default, in January 2002.

When an investor buys shares of a listed company, he or she usually has the idea that the primary goal for the company is to increase the wealth of its shareholders by paying dividends and/or causing the stock price to increase. It can be safely concluded from what has been exposed in this article that this is not the case for the now largest stockholder of YPF.

It is therefore a mistake to think of this expropriation as if it were just another hostile takeover; this expropriation is accompanied by drastic changes in the objectives, policies and strategies of the company, changes that undoubtedly affect U.S. investors. A glimpse into these changes was presented last Friday by the Argentine ambassador to the United States.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.