Limited Argie Nationalization Risk: Fitch

Following Argentina’s decision to nationalize oil producer YPF, a worst-case nationalization scenario appears manageable for large LatAm, European and US companies in the context of diversified global operations, and would be unlikely to drive rating changes, Fitch says. “We see limited credit risk related to prospective nationalization for rated multinational companies operating in Argentina, but we do foresee increased regulatory uncertainty, growing diplomatic isolation, and the potential continuation of unorthodox government policies. We expect this to curtail foreign direct investment (FDI) in key sectors such as energy, utilities, and telecom,” the agency says. For oil firms including Total, BP, Exxon Mobil, and Shell, as well as large miners like Vale, Fitch regards the expropriation risk as manageable, when viewed relative to global production. Argentina is said to be courting additional investors for the oil sector, and Fitch says possible investment shortfalls in the oil and gas sector could in part be addressed by increased investment by Chinese companies such as Sinopec, which has already invested heavily in Latin American energy projects. The nationalization drama of YPF continued to unfold following last week’s announcement, and much remains unclear. The Eskanazi family, holder of 25%, now faces payments on a $2bn loans with several banks from 2008 without the dividend income on which it relies. An agreement between Eskenazi and Repsol states that Repsol would buy Eskanzi’s shares and take over its loans in the event that Repsol loses control, though Repsol countered last week that the agreement is not valid under nationalization. The government has also included YPF Gas in the nationalization package.