Colonized by colonies

The apparent end of the Repsol-Argentina war augurs profits all round, though the small print remains to be seen. Most strengthened is the Mexican state-owned company Pemex (which owns 9.34 percent of Repsol). Not so much for its access to the Vaca Muerta oilfield. That will require heavy investment, while most of its profits go to the Mexican state and accounts for 40 percent of its revenues.

No, Pemex comes out a winner more because the agreement reduces its risks in Repsol. Pemex, indeed, was the driving force behind the pact (after twice rebelling against the chairman of Repsol), as was apparent in Industry Minister Jos¨¦ Manuel Soria's recent mandatory visit to Mexico, in the role of august messenger.

This episode bespeaks a wider phenomenon: the rising economic, political and financial strength of Latin American firms in key Spanish corporations. So to speak, the old metropolis is now being semi-colonized by its ex colonies. Just the reverse of the "second discovery" of America on the part of newly-privatized Spanish banks and utility companies, which began in the 1990s under the successive governments of Prime Minister Felipe Gonz¨¢lez, and expanded later as Latin American public companies were sold off to the private sector.

The emergence of Latin America and the recession in Spain have lately given the phenomenon a pendular aspect. On the one hand, Spanish banks, telecommunications firms and others keep their profit-and-loss accounts healthy thanks to their exposure to Latin America. On the other, Latin American firms and capital funds, strengthened by years of sustained growth, are bringing new and welcome investment to Spain. These have lately been proliferating in a receptive climate: a weak domestic market; a high level of corporate debt; companies whose balance sheets are frequently awash in treasury stock; the urgencies of expansion; and the precariousness of their core shareholders, who in many cases are over-leveraged.

Spanish banks, telecommunications firms and others keep their profit-and-loss accounts healthy thanks to their exposure to Latin America

Thus, the Mexican group Sigma launches a takeover bid for 100 percent of Campofr¨ªo; the top fortune in Mexico and the world, Carlos Slim, buys into Caixabank and other firms such as Gas Natural; the Colombian Jaime Gillinsky and the Mexican David Mart¨ªnez become the leading shareholders in Banco Sabadell. And Pemex snaps up a majority shareholding in the Galician shipyard Hijos de J. Barreras. The parade is likely to go on. And it is complemented by the more discreet invasion of the Ibex 35 by a number of major world funds.

And what does Repsol get out of all of this? Well, now it gets a financial breathing space, though pending certain market details. But to accomplish a healthy restructuring it must sell off its significant shareholding in Gas Natural: the latest comings and goings (to the Chinese in the form of Sinopec? or to the Singaporeans of Temasek?) suggest a certain confusion. It must also smooth rustled feathers among certain of its fractious shareholders. Among other mechanisms, by means of improved profits. The sale of its liquefied natural gas (LNG) assets to Shell, for example, improves profits in the short term, though not in the long.

Repsol's eventual market role is an unknown of at least three variables. It may opt to be purely an "upstream" petroleum supplier, for which role the expulsion from Argentina has handicapped it, and for which it may simply lack muscle on the global scene. Or to be a refiner oriented toward the domestic market, which of course is of limited dimensions. Or to turn its attentions back to the area of gas, which is now less practicable since the sale of its LNG. In any case, it must decide what it wants to be when it grows up.