February 25, 2014 / 12:40 PM / in 4 years

Repsol board gathers to approve $5 billion YPF settlement

MADRID, Feb 25 (Reuters) - Spanish oil major Repsol’s board was gathering in Madrid on Tuesday to approve a definitive $5 billion settlement from Argentina over assets seized in 2012, drawing a line under a two-year battle for compensation.

Though the compensation is half of what Repsol was initially demanding after Argentina expropriated its majority stake in energy firm YPF, the company is eager to end a rocky chapter in its history and avoid a drawn-out legal fight.

A source involved in the talks told Reuters last week that Argentina had offered dollar-denominated Argentine bonds with a face value above the agreed $5 billion compensation to account for the discount attached to government bonds since the country defaulted on international debt in 2002.

The Argentine government has also agreed to issue additional bonds to compensate Repsol if the market price of the bonds falls below the agreed compensation, the source added.

Representatives of Repsol’s largest shareholders - lender La Caixa, builder Sacyr, Mexican state-owned oil company Pemex and Singapore state investor Temasek Holdings Pvt Ltd - are all expected to back the deal.

Following boardroom approval, shareholders will be asked to give the green light at an annual general meeting in March or April. The deal also needs approval from the Argentine Congress, which could come in May.

“We see possible settlement with YPF as strongly positive for (Repsol‘s) ratios and valuation, but part one of a multi-step process which provides cash to fund M&A,” said RBC Capital Markets analyst Peter Hutton.

Repsol is in the middle of a four-year plan to boost its international exploration and production business to compensate for the loss of YPF, which had accounted for over half of its output.

It has said it could sell its 30 percent stake in Spanish power firm Gas Natural Fenosa to help fund a purchase in North America.

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