Spain Won’t Allow Repsol to Fall Into Foreign Hands

By Gianluca Baratti and Greg Walters

Nov. 26 (Bloomberg) -- Spain’s government won’t allow Repsol YPF SA, the country’s largest oil company, to fall into foreign hands, Prime Minister Jose Luis Rodriguez Zapatero told Parliament.

While he won’t block the sale of a minority stake to OAO Lukoil, “the government will defend the Spanish nature of Repsol,” Zapatero said today.

The stake in Repsol, the supplier of 42 percent of Spain’s oil, is up for sale because Sacyr Vallehermoso SA, the Spanish builder whose debt is six times its market value, must repay more than 2 billion euros in loans by 2010 as the nation’s housing slump deepens. Lukoil, which owns oil-producing assets in Siberia, is adding refining capacity in the Mediterranean to process its crude.

Repsol rose 3.5 percent this week in Madrid as Lukoil held discussions with Repsol’s two largest shareholders to buy a stake of up to 29.9 percent, according to Criteria Caixacorp SA, the company’s second-biggest investor.

Its shares fell 3 percent today as Zapatero said Repsol should have Spanish directors, as well as autonomy and independence. “We will support them, but we won’t intervene.”

A 30 percent stake in Repsol is worth about 5 billion euros ($6.5 billion), based on the oil producer’s closing share price on Nov. 20, the day before Criteria, a Barcelona-based investment company, first disclosed the talks.

‘Steep Discount’

Lukoil, Russia’s largest non-state oil company, already owns refineries in Bulgaria and Romania and Chief Executive Officer Vagit Alekperov agreed in June to pay 1.35 billion euros to buy into a refining venture in Italy with ERG SpA. Repsol, which operates five refineries in Spain, has lost 40 percent of its value this year.

“Lukoil is actively pursuing downstream assets in Europe, and Repsol controls some of the best refineries in the region,” said Artyom Konchin, an analyst at UniCredit Aton in Moscow. “If Lukoil can get the Repsol stake at a very steep discount, then it makes sense. It all comes down to the price of the deal.”

Repsol was down 49 cents at 14.36 euros as of 1:20 p.m. in Madrid. Sacyr rose 4.9 percent to 7.78 euros. Lukoil slid 4.3 percent to 847.40 rubles on the Micex stock exchange in Moscow.

An agreement to buy a stake of more than 30 percent would oblige Lukoil to make a public offer for the rest of Repsol. Lukoil declined to comment when contacted by Bloomberg today.

Gazprom Not Interested

OAO Gazprom, Russia’s natural-gas exporter, earlier this month ruled out any interest in the Repsol stake. The Spanish government has already said it’s opposed to an approach by a nationally owned company. Lukoil is 20 percent owned by ConocoPhillips, the second-largest U.S. refiner.

Zapatero told reporters yesterday that the government will play no role in negotiations concerning the stake sale. “The government does not have to give its approval,” he told a press briefing. “This is not a political issue at all. This is a strictly business issue.”

Lukoil held a video conference yesterday with the lenders that financed Sacyr’s purchase of 20 percent of Repsol as part of negotiations to acquire Sacyr’s holding and an additional 9.9 percent, El Economista reported today, without citing anyone.

The Russian oil company agreed to requests from creditors of Sacyr to provide further guarantees, including oil reserves and Lukoil bonds, according to the newspaper.

Even with the offer of extra guarantees to creditors including Banco Santander SA, Caja Madrid and Citigroup Inc., no agreement was reached, the newspaper said.

None of the creditors would comment today. Spokespeople for Repsol and Sacyr also declined to comment.

“We’re concerned Lukoil will need a lot of cash next year,” said Igor Kurinnyy, an ING Groep NV analyst in London. “If buying this stake means deeper cuts in capital expenditures and core activities, then we’d rather they not buy it. I’m worried that there could be substance behind these stories, because Lukoil is not denying them.”

Lukoil has $1.9 billion in debt and loans due at the end of 2008. Obligations will drop to $609 million in 2009 and then to $525 million the year after that. The company had $1.66 billion in cash at the end of June.

To contact the reporter on this story: Gianluca Baratti in Madrid gbaratti@bloomberg.net.