Argentina shocks investors with decision to expropriate Vicentin

The Argentine private sector is in turmoil after the federal government announced plans to intervene in and then expropriate Vicentin, an important player in the country’s agribusiness and biofuels sector.

President Alberto Fernández announced the decision on Monday evening. He has appointed Gabriel Delgado, a former agriculture minister, to carry out the intervention, instead of the judicial branch as would usually be the case.

The government has framed the decision as a form of bailout for a struggling company that has failed to pay its debt commitments of some US$1.35bn, most of which are held by public lenders. The intervention would be the first step, the president said. The second would be the approval of an expropriation bill in congress.

Under the bill, the company’s assets would fall under the purview of a trust fund managed by YPF Agro, the agribusiness subsidiary of state-owned oil and gas giant YPF. The decision comes just weeks after YPF CEO Guillermo Nielsen, an appointee of the Fernández administration, said the NOC would de-emphasize its non-oil and gas-related businesses in a bid to increase liquidity and remain lean during the ongoing crisis.

The process mirrors actions taken in the past by congress, particularly the expropriation of YPF in 2012, which had previously been privatized starting in 1992. It also highlights the possible higher risk of state intervention, as the government looks to increase its influence in various economic sectors, particularly those related to exports and US dollar inflows.

“This will help to get this company back on its feet. The Argentine state, with the idea of professional management, with the strategic management of YPF… will have a witness company in the grains market and a witness in the foreign exchange market,” said production minister Matías Kulfas. 

In Argentina, a witness company is considered to be a state-controlled company competing in a private market, where it can exert pressure to reduce prices and otherwise expand the government’s influence without having to directly intervene in a certain market. The move could also allow YPF to grow its biofuels business, which began somewhat timidly in 2018.

According to the government, Vicentín’s grain exports accounted for 9% of the national total last year. And this export activity explains part of the interest of the government at a time when the central bank's foreign reserves are dwindling rapidly, prompting observers to predict a further devaluation of the peso.

The move does give Argentine authorities access to an inflow of dollars it can control more directly. The expropriation also marks a move by the government to increase its influence in a sector that has traditionally been controlled by private players and has been a big source of confrontation for previous Kirchnerist administrations.

But there has also been speculation of another catalyst for the expropriation: the intervention of vice president and former Peronist president Cristina Fernández de Kirchner, who has reportedly been interested in the company for years. The fact that the company had ties to previous president Mauricio Macri, for whom it was a top campaign donor, has fueled accusations that the move is politically motivated and was orchestrated by the vice president. 

But President Fernández defended the decision on Tuesday, stating it was his own choice and not influenced by his vice president. The measure was presented to Fernández de Kirchner last Thursday, Fernández said, less than a week before the announcement.

Regarding the possible consequences, Fernández pushed back against the suggestion that the decision could hurt investor confidence and fuel the idea that his administration could move to take control of other private sector players.

“Nobody can think it is our policy to take control of private companies, essentially because I don’t believe in that. The measure regarding Vicentín is absolutely exceptional,” the president told the press. “We are not expropriating a prosperous company but an insolvent company that is undergoing bankruptcy proceedings. If it functioned normally, nothing like this would have happened. That is the difference [between what we’re doing and] interventionist policies," he said in broadcast comments.

The announcement led to average drops of around 8% in Argentine stocks on international markets, a sign that investors are struggling to support a decision that was taken without previous warning and that breaks regulatory normality in extreme fashion.

Argentina is in the midst of renegotiating its foreign currency debt with international bondholders, and observers worry that this decision could send the wrong signal. For a start, it is not clear where the government will get access to the funds to service the company’s large debt commitments or pay for the acquisition itself, and how these expenses will gel with the government’s narrative it cannot service its own commitments.

In the past, expropriations of this nature have led to large lawsuits in international courts. One such lawsuit regarding the renationalization of NOC YPF received a ruling from a New York court just last week that allowed the trial for economic damages to continue in the US, denying Argentina’s arguments over national sovereignty.

Bruford Capital, a company that acquired interest in the trial from Spain’s Repsol, YPF's previous owner, may now move ahead with a case that could cost the Argentine treasury as much as US$9bn. Vicentin CEO Sergio Nardelli has already said the company will launch a lawsuit to appeal the decision by the Argentine state.