Argentine approach on YPF settlement sets floor for deal

Fri Jun 28, 2013 9:20am EDT
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By Tracy Rucinski and Hilary Burke

MADRID/BUENOS AIRES (Reuters) - Argentina's $5 billion informal compensation offer for seizing Repsol's (REP.MC: Quote) stake in energy firm YPF (YPFD.BA: Quote) sets a floor for talks but the cash-strapped country may struggle to come up with a better offer.

Spanish oil major Repsol rejected on Wednesday an unofficial non-cash settlement for its 51 percent of YPF, expropriated by Argentina in 2012, but welcomed the government's willingness to start negotiations on a solution.

The offer was far below the $10.5 billion in cash or liquid assets Repsol is demanding in international arbitration and consisted mostly of a small stake in Argentina's Vaca Muerta shale field.

"It is likely that had the offer been in cash and liquid assets Repsol would have accepted the deal," Barclay's said.

But can Argentina pay cash?

The country has been effectively frozen out of global debt markets since it staged the world's biggest sovereign default in early 2002, at the height of a devastating economic crisis.

"Holdout" creditors who rejected its debt restructuring offers in 2005 and 2010 continue to sue for full repayment on their defaulted bonds, and it is not clear that Argentina could issue new debt without those creditors blocking the flows.

The central bank's international reserves have dropped roughly 18 percent in the last year to about $38 billion, as a scarcity of dollars on the tightly controlled foreign exchange market along with a decline in the trade surplus have eaten into its capacity to accumulate funds to offset debt payments.   Continued...

Employees work at a YPF gas station in Buenos Aires May 23, 2013. REUTERS/Marcos Brindicci