February 21, 2014 / 12:48 AM / 6 years ago

Exclusive: Argentina, Repsol to sign $5 billion YPF deal - source

LONDON (Reuters) - Argentina and Repsol SA (REP.MC) will sign a definitive $5 billion settlement over the seizure of YPF SA (YPFD.BA) within days, a source involved in the talks said on Thursday, ending a bitter two-year bilateral dispute.

A man walks past a petrol station owned by Spanish oil major Repsol in central Madrid November 26, 2013. REUTERS/Sergio Perez

Argentine President Cristina Fernandez nationalized Repsol’s majority stake in the country’s largest energy company in 2012, sparking a row with Spain, tension within Repsol’s boardroom and a freeze on international investment in the Vaca Muerta shale field.

After 18 months of conflict, the two parties struck a preliminary compensation deal last November, but spent the past six weeks ironing out the details of a settlement that is half the $10.5 billion Repsol was seeking in international courts.

A deal, to be paid in U.S. dollar denominated bonds, had been complicated by Repsol’s demands for guarantees on the paper, a challenge for a country that has been shut out of international debt markets since a sovereign default in 2002.

“The important part of this deal is that Argentina recognizes $5 billion of debt to Repsol over the expropriation,” the source told Reuters on condition of anonymity because he was not authorized to speak on the record.

Under the terms of the agreement, Repsol will receive various bonds with a total nominal value of around $5.5 billion, including already issued Argentine dollar-denominated bonds and a new ad-hoc 10-year bond worth $3 billion, the source said.

A market source confirmed the offer was comprised of already issued Argentine bonds, governed under local law, and a new 10-year bond. Deutsche Bank acted as an independent advisor during the talks.

The deal still needs approval from Argentina’s Congress and from Repsol’s board of directors and shareholders. The board of the Spanish company is expected to discuss the matter on Tuesday.

Repsol declined to comment.

A spokeswoman for Argentina’s economy ministry said the government would not reveal any details until the deal is signed, and will abide by the confidentiality clause.

For Argentina, putting an end to the Repsol conflict will open the door to developing the Vaca Muerta formation, possibly one of the biggest shale reserves in the Western Hemisphere.

Argentina needs foreign money to develop the field, but international investors, facing legal threats from Repsol, were reluctant to jump in.

Repsol has said that, once it has a firm settlement, it will drop all legal claims against Argentina and companies such as Chevron Corp (CVX.N) that agreed to invest in Vaca Muerta after the expropriation.

For the Spanish group, closing the chapter on YPF will finally allow it to focus on expanding its international exploration and production operations without a legal battle hanging over its head.

The company has said it is eyeing opportunities in North America and one source said it has hired JP Morgan to identify targets.

Repsol’s shares, which traded as high as 19 euros after the preliminary YPF deal announced in November, closed at 17.985 euros on Thursday.

Repsol rejected an earlier YPF deal orchestrated by key shareholder Pemex of Mexico in June that would have given it $1.5 billion in bonds and a small stake in Vaca Muerta, saying it did not want to reinvest in the country.

Additional reporting by Alex Chambers and Alejandro Lifschitz; Writing by Tracy Rucinski; Editing by Julien Toyer and Andre Grenon

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