Friday, April 20, 2012

YPF Move Puts Eskenazi Clan In Debt Bind

April 19, 2012 8:24 pm

YPF move puts Eskenazi clan in debt bind

Plucked from obscurity and ushered into Argentina’s largest oil company as strategic partners, the Eskenazi business clan must be ruing the day they got involved.
The renationalisation of Spanish-controlled oil company YPF leaves the Eskenazis – minority shareholders who were ushered into the business at the behest of Néstor Kirchner, the former president – facing the prospect of potentially unpayable debts





“This is the worst possible scenario for the Eskenazis,” said Lucio Di Matteo, author of a book about the new class of oligarchs who rose to the forefront of Argentina’s business life under Kirchner entitled “Thanks, Néstor”.
On Monday Kirchner’s widow and successor, Cristina Fernández, announced plans to expropriate 51 per cent of YPF, slashing Repsol’s stake to 6.4 per cent – but, contrary to previous expectations, leaving untouched the Eskenazis’ 25.46 per cent holding, which they own through their Petersen Group.
But because of the entirely debt-financed way in which the Eskenazis entered YPF – they borrowed $3.4bn from a group of banks and from Repsol itself to build up their stake in two stages – expropriation would have been infinitely preferable.
Instead, they are now left struggling to renegotiate at least some of the $1.2bn still owed to the banks while the value of their holding has collapsed as investors stampede out of the stock.
The $560m balance of the Eskenazis’ first loan – put together by Credit Suisse, Goldman Sachs, BNP Paribas and Itaú to help them take their initial 15 per cent stake in YPF – is due next month.
In addition to that, they took two vendor loans from Repsol, for $1.015bn and $626m, and a second bank loan, put together by Itaú, Credit Suisse, Citibank, Standard Bank and BNP Paribas, for $700m. The plan was to repay the debts via dividends – but that avenue has abruptly been cut off with the nationalisation, which is likely to be approved swiftly in Congress and by a majority.
“I find it extremely difficult to find a way to avoid default,” said Alexandre Marie, oil analyst at Exane BNP Paribas in Paris. “The 25 per cent stake in YPF is pledged as collateral, but it would be extremely difficult to sell this share. At current market prices the shares don’t even cover half the outstanding value of the loans.”
Still in full widow’s weeds 18 months after her husband’s death, Ms Fernández choked back tears during her nationalisation announcement when she said: “He [Kirchner] always dreamed of recovering YPF for the country.”
It was Kirchner who engineered the Eskenazis’ entry into YPF. He had been a friend and confidant of Enrique Eskenazi, the now octogenarian patriarch, and the two enjoyed such a rapport that Mr Eskenazi had a direct line to the president.
The government hypothesis was that they had to have an Argentine partner – someone ‘who’ll pick up the phone when we ring’
- Lucio Di Matteo, author of Thanks, Néstor
Kirchner’s desire in 2007 was to seek a partner for Repsol to ensure the “Argentinisation” of the oil company at a time when strains in the country’s energy policy were beginning to show. Despite not being oilmen – the Eskenazis, who own four provincial banks and a construction business and were once described by Repsol’s chief, Antonio Brufau, as “experts in regulated markets” – suddenly found themselves sharing a boardroom with the Spaniards.
“The government hypothesis was that they had to have an Argentine partner – as Julio de Vido, the planning minister, used to say: ‘We need a director who’ll pick up the phone when we ring’,” said Mr Di Matteo. “The problem was, they never understood they were put there to represent different interests [to those of Repsol].”
One of the country’s most powerful businessmen under Kirchner, Mr Eskenazi is said to have owed his introduction to the owner of the Petersen Group, which he later took control of, via that most Argentine of institutions: psychoanalysis.
A chance meeting at the office of the therapist both executives used led to Mr Eskenazi becoming “an adviser, then a director and finally ending up with the company”, as he once told an interviewer.
He met Kirchner in the southern province of Santa Cruz, where the former president was governor. The two clicked: Mr Eskenazi ended up taking control of the Banco de Santa Cruz and his construction firm enjoyed public contracts. Then came what must have seemed a wily business deal to move into YPF without having to stump up the cash.
But the relationship appears to have frayed under Ms Fernández and one economist said the current nightmare scenario for the family “reeks of vengeance”.
Profiles: Father and son leaders of powerful conglomerate
Enrique Eskenazi
The octogenarian head of the Petersen Group, was born in the northern Argentine province of
Santa Fé. However, it was at the other end of the country, in the windswept Patagonian state of Santa Cruz, where former president Néstor Kirchner was governor, that Mr Eskenazi made his mark.
A chemical engineer who carried out his postgraduate studies in Chicago, Mr Eskenazi began his business career at agricultural conglomerate Bunge y Born. Mr Eskenazi moved into finance in the 1990s, later earning the moniker “the Kirchner banker” because of the involvement of his Banco de Santa Cruz in the handling of millions of dollars of provincial funds.
Mr Eskenazi, who will be 87 this year, has not been involved in day-to-day running of YPF for some time after handing that role to Sebastián, one of his four sons.

Sebastián Eskenazi
YPF’s chief executive since 2008 until the company was placed under government administration this week, Sebastián Eskenazi keeps a low profile and was said to enjoy the same kind of instant access to Kirchner as his father.
The suave executive holds a string of posts in Petersen Group companies. He was toasted by the government of Cristina Fernández after announcing that discoveries of shale oil and gas in the Vaca Muerta (Dead Cow) formation, were far bigger than previously thought, at about 1bn barrels.
But Lucio Di Matteo, author of a book on prominent business leaders who have flourished under the Kirchners, said Ms Fernández became incensed at Mr Eskenazi’s salary and purchase of a $5m helicopter at a time when YPF was paying hefty dividends instead of ploughing profits back into boosting production.
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