Milei prepares Aerolíneas for privatization in Argentina – 12/21/2023 – Market

Argentine President Javier Milei has taken the first step toward privatizing Argentine state-owned companies with a sweeping decree that opens the door for private companies to take control of key sectors.

Milei — a libertarian who wants to reduce the size of government and deregulate to turn around Argentina’s crisis-prone economy — announced a series of reforms on Wednesday night (20) that would allow the sale of dozens of state-controlled companies, many of them deficient.

“Repeal the rules that prevent the privatization of state-owned companies,” Milei said in a television message, listing the reforms in bullet points. He added that all state-owned companies would have their legal structure changed to fully pave the way for privatization.

Milei campaigned on this message, mentioning national airline Aerolíneas Argentinas SA, railway networks, state-owned media companies and water and sewage company AySA as assets to be sold to private operators. He also said he would target state oil drilling and refining company YPF SA and energy company Enarsa after a “transition” period.

The only company mentioned by Milei in his announcement was Aerolíneas, which the government spent hundreds of millions of dollars a year to support. He said he authorized the transfer of shares — likely to employees — and at the same time would free up Argentina’s air travel industry.

Although Milei may seek the privatization of companies by presidential decree, he is likely to face resistance in congress, where his party is in the minority, and may have difficulty obtaining enough votes to approve divestments.

“I don’t see a scenario in which this decree is supported by congress,” Paulo Farina, a partner at Buenos Aires-based consulting firm Visviva, said in an interview. “It touches on too many interests not to see a congressional coalition trying to reject it.”

With his privatization initiative, Milei imitates a similar policy adopted by former president Carlos Menem, a pro-market leader of the 1990s, who sold several strategic assets in an attempt to reduce the size of the government after a period of hyperinflation.

After a devastating crisis that peaked in late 2001, Argentina chose to renationalize some companies in an era of leftist leaders. They took over AySa in 2006, Aerolíneas in 2008 and YPF in 2012. Milei, determined to reduce public spending and subsidies, wants to undo all of this.

“It would take us almost a couple of years to privatize YPF,” Milei told Bloomberg News during the campaign. “Because the company was destroyed and selling it today at market prices would be giving it away. We need it to manage the transition to get the energy sector in order.”

YPF and other Argentine energy companies have faced heavy regulation to protect consumers from currency devaluations that drive inflation, limiting their revenues and investments.

The New York-listed shares of the state-owned oil company still trade about 20% below what they were worth when the government seized it in April 2012, taking control of Spain’s Repsol SA — even after the big stock market rally following the Milei’s electoral victory last month.

Complicating matters is a U.S. court ruling this year ordering Argentina to pay about $16 billion after making technical errors during nationalization. The government said it will appeal.

However, YPF over the past ten years has channeled its nationalist role to successfully lead the development of Argentine Patagonia’s shale riches, and is spearheading plans for gas pipeline expansion and liquefied natural gas exports.

Milei chose executives from Argentine-Italian billionaire Paolo Rocca’s oil and steel empire to lead YPF.

It may be more difficult to privatize YPF than some other companies, as the 2012 nationalization law contains a clause that requires two-thirds of Congress to approve the sale of government shares, rather than just a simple majority.