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4-Traders Homepage  >  Equities  >  BOLSA DE COMERCIO DE BUENOS AIRES  >  YPF SA    YPFD   ARP9897X1319

YPF SA (YPFD)

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YPF SA : Argentines jump through new hoops to get dollars

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05/16/2012 | 09:43pm CEST

Argentina's quest to keep dollars in the country is spawning illegal money trades inside offices and even schools. But big companies have fewer ways to skirt currency controls and must adapt to the country's offbeat, changeable rules.

President Cristina Fernandez, a feisty populist, vowed to "fine-tune" economic policy after winning re-election in October. She has since limited imports, imposed capital controls and seized a majority stake in top energy company YPF.

Fernandez must curb capital flight in a country still wary of government intervention after the currency devaluation and bank deposit freezes of its 2001-2002 financial crisis.

She needs dollars generated by a growing trade surplus to stay in Argentina to help fatten central bank reserves used to pay government debt.

Officials are micromanaging money flows to carry out this mission, limiting dollar purchases and discouraging dividend payments and international wire transfers.

As the red tape piles up, businesses face delays and distortions that are hitting private investment. Analysts say the tightened state grip could backfire as an economic slowdown cools consumer and corporate spending.

With limited access to dollars on the formal market, individuals and some small companies go in search of greenbacks on the black market, where costs are rising sharply.

Other companies buy bonds or shares they can sell abroad for dollars - which is legal but frowned upon by the government.

"If you ask a foreigner what the business climate is like, they will say they work 50 percent of the time on their actual business and another 50 percent or more to comply with all these regulations," a legal advisor to companies said on condition of anonymity, reflecting a general unwillingness to speak publicly.

"If you don't comply, you'll have a container held up at customs or other problems."

Argentines tend to save in the U.S. currency and have long smuggled dollars out of the country to dodge taxes.

To stop people spiriting hard currency from Argentina, the country's tax agency has dogs sniffing around for dollar stashes. A dog named Chalk found $110,000 hidden in a man's car as he tried to cross into Uruguay earlier this year.

The spread or gap between the formal dollar exchange rate and the parallel rate has quadrupled since Fernandez introduced new controls on the economy.

Business leaders are under extra pressure to keep their cash in Latin America's No. 3 economy, where growth is cooling fast and inflation tops 20 percent a year. They get phone calls from notorious government price czar Guillermo Moreno, who often decides when and why dollars change hands.

SCHOOL YARD DEALS

Argentines must have tax agency approval to buy foreign currency at the official exchange rate. A monthly limit is set on these purchases but sometimes operations are frozen for days, for reasons that go unexplained.

That has been the case in the last week, triggering a 7.5 percent drop in the peso's value on the black market as demand for dollars rose. The tax agency warned on Tuesday it will crack down on people selling dollars at the parallel rate.

Argentines are, however, adept at finding shortcuts. They see the latest controls as vexing but manageable.

"I've changed money at my children's school," an economist with foreign business contacts said. "You'll find these kinds of deals at every school in (wealthy areas like) Palermo, Recoleta, Belgrano and Martinez, and a black market inside every office."

"The problem is for big companies because they can't use the black market," he added. "Smaller companies always have some black money to play around with and they will go to the parallel market, or use the blue-chip swap rate, or whatever they have available."

CONSUMER BINGE

The blue-chip swap market reflects the implied exchange rate used to buy Argentine bonds or shares that can be sold overseas for dollars. Some companies get their money out of the country through these operations, which the government eyes closely.

The blue-chip swap rate has plunged to 5.81 pesos per dollar, versus the black-market rate of 5.49 per dollar. This represents a 31 percent and 23 percent premium, respectively, over the official interbank rate.

Another strategy for sending foreign currency abroad is to buy Argentina's Boden 2012 bonds that mature in August, the proceedings of which can be deposited in overseas accounts.

Some small- and medium-sized companies buy dollars on the black market and then import contraband goods with the help of corrupt customs officials, a source with knowledge of the foreign exchange market said.

But bigger companies tend to play by the government's rules and they have enough leverage to hash out accords over currency access and trade flows. They are putting their pesos into certificates of deposit and hunkering down to avoid roadblocks.

"The bottom line is that companies here make money. As long as we have a continuing consumer binge in Argentina, then companies will do pretty well here, despite all the craziness," a diplomatic source who works on economic matters said.

SIGNS OF FATIGUE

That consumer binge is flagging.

Consumer confidence sank 12.7 percent in April versus March, showing its steepest drop since September 2002, when Argentina's economy was mired in recession and still reeling from a world-record sovereign debt default.

The restricted access to dollars has also hit the real estate market, where sales are transacted in the U.S. currency. Property deals in the city of Buenos Aires fell year-on-year for a fourth straight month in March, local notaries reported.

Gross domestic investment fell year-on-year in February and March, declining for the first time since late 2009, according to Orlando J. Ferreres & Associates. The consulting firm said import curbs limiting capital goods purchases played a key role.

The complex web of regulations, coupled with a genuine economic slowdown, do not bode well for investment prospects. Argentina is Latin America's third-biggest economy but it only ranked No. 6 in foreign direct investment last year.

"What company headquarters will authorize investments if they can't repatriate the money later? That's a problem," a financial consultant said.

TRADE HOOPS

In February, the government began requiring prior state approval for nearly all imports, angering trade partners and prompting the European Union to prepare a suit against Argentina at the World Trade Organization.

The curbs have worked - at least in the short term. The trade surplus is growing again after shrinking in 2011 and 2010.

To control money flows, the government has sharply limited advance payments on imports and last month ordered exporters to cash in their earnings within 15 to 30 days of sealing a deal.

This means some companies will have to pre-finance their own sales abroad while their merchandise makes its way to buyers on the other side of the globe. Smaller export companies were later exempted from the new rules after they complained.

Even before these new procedures were imposed, companies were under pressure to boost exports to balance out their imports, leading to quirky deals like one in which BMW luxury car importers agreed to sell rice overseas.

"These are the rules of the game. I have two alternatives: I can go off and shoot Moreno and stop working in foreign trade, or I can adapt somehow and keep operating," said a person who works in foreign trade. "I see a lot of people adapting."

(Additional reporting by Guido Nejamkis; Editing by Andrew Hay)

By Hilary Burke

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Financials ( ARS)
Sales 2017 261 573 M
EBIT 2017 25 487 M
Net income 2017 -
Debt 2017 148 097 M
Yield 2017 0,13%
P/E ratio 2017 232,49
P/E ratio 2018 19,59
EV / Sales 2017 1,15x
EV / Sales 2018 0,99x
Capitalization 152 684 M
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Number of Analysts 3
Average target price 444  ARS
Spread / Average Target 14%
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NameTitle
Ricardo Darré Chief Executive Officer
Miguel Ángel Gutiérrez Méndez Chairman
Daniel Cristian González Casartelli Chief Financial Officer
Armando Isasmendi Independent Director
Juan Franco Donnini Independent Director
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