Spanish oil firm Repsol (REPYY, quote) has filed a lawsuit with the World Bank’s arbitration unit ICSID over their claim that Argentina’s nationalization of YPF (quote) was illegal. Does this mean it’s time to jump back into REPYY or YPF?
As reported in the Financial Times, REPYY has appealed to the ICSID that they are owed compensation for the billions of assets that the Argentinian government expropriated from the firm, as these actions violated the two countries’ bilateral investment protection treaty.
Unfortunately for investors in REPYY, although they have a valid case against the Argentinian government, these legal maneuvers are unlikely to yield tangible benefits for the company anytime soon – for the following reasons.
First, international arbitration in matters like these typically lasts three to four years, meaning that the $10.5 billion sought by REPYY may not return to their coffers until 2016.
Second, Argentina could question the jurisdiction of such a trial, and ask that the case be moved to Argentinian courts, where the nationalization move has significant public support.
Third, Argentina has little motivation to compensate foreign firms, given that it is already blackballed from international credit markets, after failing to repay loans in the wake of their 2001-2002 crisis. The country’s reputation with creditors is already tarnished; thus, international pressure to repay REPYY would likely have little effect.
As a result, this foray into international arbitration is not reason enough to jump into REPYY stock. Combined with pressure on oil prices and euro zone problems, REPYY looks like a stock to avoid here. As for YPF, with the Argentinian government’s hand wrapped tightly around the company, using the company’s resources for national needs with little interest to the benefit of the shareholders, this stock remains a no-no for investors.