Spain’s largest integrated oil and gas company Repsol YPF, S.A. (REP) announced the disposal of 3.3% of its Argentine unit, YPF, to Capital and Eton Park investment funds in private transactions worth $500 million (nearly $39 per share). The divestiture plan is a part of the company’s strategic move to realign its asset portfolio and thereby to reduce its holding in Latin America.
The funds took 1.63% interest each. However, Eton Park was granted an option to acquire an additional 1.63% of YPF at $43 per share. The warrants are valid until January 17, 2012. Upon the closure of these transactions, Repsol is expected to hold 79.84% of YPF, Petersen Group will have 15.46%, while 4.69% of the company’s shares will be in free float.
Last week, Repsol sold its 30% stake in the Alberto Pasqualini Refinery (REFAP) in Brazil to Petrobras. The total transaction value was $750 million, with $350 million in cash and $500 million in net debt associated with the refinery.
Repsol remains committed to its divestiture plan and highlighted that its YPF stake would be reduced to 51% by 2014. Although the company’s Argentine counterpart has seen recent improvements in profitability, the basic fundamental of the business remains a drag. This is mainly due to the imposition of domestic price restrictions.
In late November, Repsol filed a request with the U.S. Securities and Exchange Commission, for selling as much as 15% of YPF shares in the market. With this, Repsol is expected to own 55% of YPF by the end of 2011.
The company was also raising funds for its various upstream activities in the coveted subsalt area offshore Brazil. While we appreciate its strategic moves to reduce its Argentine exposure, raising funds from Sinopec (SNP) for upstream activity in Brazil is also commendable as it will likely increase value for shareholders. The disposition will also further augment Repsol’s focus on its high quality growth outside Argentina. We believe Repsol’s upstream and downstream growth projects provide it a competitive advantage.
Repsol initiated a number of measures that should reduce its exposure to the Argentine market. However, this remains a long-term strategic goal and is not expected to result in a significant reduction in its Argentine exposure any time soon. Consequently, the company holds a Zacks #3 Rank with a short-term ‘Hold’ rating. Our long-term Outperform rating on Repsol remains unchanged at this stage.
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