YPF Drained by Sovereign

YPF, the largest energy company in Argentina, is under credit pressure from the government, says Moody’s, which cuts it to Ba1 (stable) from Baa2 on the global local currency scale. The agency notes Argentina’s deteriorating economic profile and concerns that the government’s revenue needs and unpredictable policy framework could result in unfavorable tax and regulatory changes that will continue to pressure YPF’s financial profile and operating performance. Moody’s also notes a relatively poor record of reserve replacement and declining oil and gas production. “Elements of potential support for YPF external to Argentina are no longer sufficient to justify YPF’s [rating] at a level that pierces the country’s Ba1 global local currency ceiling,” it adds. Argentina is rated B3 (stable) by Moody’s and has a Ba1 global local currency ceiling. The agency notes that Repsol YPF, a Spanish integrated energy company (Baa1), continues to own approximately 84% of YPF, but is pursuing a longer-term strategy to reduce ownership and exposure to YPF.