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November 27, 2013 7:07 pm

Repsol’s big shareholders call the shots in YPF settlement

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There have been covert meetings between international financiers and presidents, armed guards arriving at offices and executives fleeing for their safety on the first flight home.

Since the forced nationalisation of Repsol’s YPF division by the Argentine government last year, such events, often not far from the plot of a James Bond film, have become almost standard fare.

Over the past year the geopolitical intricacies encircling Repsol have taxed even the keenest observers, with three national governments and several large companies competing to get the settlement that suits their particular interests. What is not yet clear for Repsol’s other investors is whether their interests have been properly represented.

“This has not been an easy situation for anyone to understand,” says José Martin-Vivas Alcaide, an oil sector analyst at Mirabaud in Madrid. “The situation has involved many conflicts between shareholders, and a conflict that was not simply between companies, but also between various governments all wanting separate things”.

Present at the meeting in Buenos Aires where the preliminary agreement on $5bn compensation was struck on Monday were not only Argentine officials and Repsol executives, but also Spain’s industry minister, the head of Mexico’s state oil company, and the chairman of Spain’s largest bank by domestic assets.

Pemex, Mexico’s state oil company and Repsol’s second-largest shareholder, had made it known to the Spanish group that it favoured a quick settlement with Argentina, and earlier this month began to publicly attack Antonio Brufau, Repsol’s executive chairman, for the size of his salary.

Pemex’s chief executive Emilio Lozoya, who led the attacks on Mr Brufau, is known to have a close relationship with Miguel Galuccio, the head of YPF who has campaigned for a settlement because of the need for the Argentine group to remove legal barriers to securing new investment in its assets.

Meanwhile Caixabank, the Catalan lender that is Repsol’s largest investor and, through its web of stakes in Spanish companies, one of the most influential concentrations of corporate power in the country, had begun to appear at loggerheads with Mr Brufau.

Both large investors had argued to Mr Brufau that it was better for Repsol to get some compensation rather than wait for a larger payment that would never come, given the large number of international creditors that were already pursuing Argentina after its debt default after the turn of the century.

Isidre Fainé, Caixabank’s president, who is also the vice-chairman of Repsol, had travelled to Argentina earlier this year in secret to meet President Cristina Fernández to discuss the situation.

While senior executives at Repsol said the company’s chairman was aware of this trip, other people close to the company interpreted it as a deliberate move by the banker to sideline Mr Brufau, who had come to be seen as an obstacle to any peace deal being struck.

“It is strange – it is not normal that large shareholders are negotiating an issue such as this around the side of Antonio Brufau,” said one former senior executive at the company.

The question Mr Brufau will now have to answer to his other shareholders is whether $5bn compensation for YPF, which he had previously appeared to value at $10.5bn, is enough.

People close to Repsol were arguing ahead of the company’s board meeting this week, where the deal was formalised, that the deal marked a concession from Buenos Aires and was a result of the pressure the Spanish company exerted through international legal claims.

Analysts and investors appeared to agree, with Repsol shares rising sharply after the news first broke. “The agreement for a compensation deal in liquid assets is clearly a step forward in the negotiation process,” said analysts from BPI, a Portuguese broker.

But other problems remain. The payment is likely to be made in Argentine-backed debt, which may not be liquid and may not be easy for Repsol to take out of the country.

It is also not certain that Argentina will be able to pay interest on any debt it issues to Repsol because of claims against its government by hedge funds following the default by Buenos Aires.

But ahead of the final details of a settlement emerging, what does appear clear is that whether Mr Brufau is happy with settlement or not, Repsol’s two largest and loudest investors have got their way in the end.

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