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Spain Worries Other Spanish Companies Could Suffer YPF's Fate

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MADRID - A top Spanish government official indicated some of the country's blue-chip companies could suffer a similar potential fate as Repsol YPF SA's local unit.

Spanish Industry Minister Jose Manuel Soria said Spanish companies active in Argentina have expressed concern about their future in the country following the South American nation's decision Monday to seize 51% of YPF SA, Argentina's leading oil and gas company, leaving Repsol with a 6% stake.

The Argentine government blames YPF for low production that has forced it to spend heavily on importing energy, at a time when capital flight has made dollars scarce.

The share price of Repsol YPF SA continued to drop Wednesday, building on hefty losses Tuesday as the Spanish government and analysts alike expressed concern about Argentina's move.

In an interview with Spanish state broadcaster TVE, Soria noted the companies are reporting that their businesses haven't suffered, but he said the move on YPF not only hurts Spain and Repsol, but also Argentina, which he argued needs foreign investment.

"Investors look for regulatory certainty. Who would want to invest if regulatory certainty isn't guaranteed," Soria said.

He also reiterated that the government is planning a response to the expropriation, which he said will be diplomatic, commercial, and related to the energy sector.

At 1104 GMT, Repsol shares were down 2.1% at EUR16.07.

Argentina's decision is already showing some small signs of affecting some Spanish companies' willingness to invest in Argentina. N2S, a small Spanish energy technology and communications company, said Wednesday that it would put the brakes on its plans to open an office in Buenos Aires, complaining about "the legal uncertainty" created by Argentine President Cristina Kirchner's move.

The company said Argentina was its next stop after starting operations in Brazil, Mexico and elsewhere in Latin America.

Analysts continued to show their disquiet about Repsol's future Wednesday, and the move by Kirchner spurred several to cut their target share prices on the company. While most continued to see an upside to the share price, the risks involved with what is likely to be a drawn-out process prompted them to temper their expectations.

"Tuesday's conference call with Repsol management provided little reassurance on Argentina," said analysts at Nomura in a note, pointing out that much depends on the market's confidence that Argentina is willing to pay a fair value for YPF and how Repsol's management plans to finance growth without YPF.

Analysts at UBS AG said while they believe the full loss from the YPF takeover is already priced into Repsol shares "we are uncertain that the compensation setting will be in line with the statutes or laws relating to YPF, and the external remedies available to Repsol are likely to be long and uncertain."

Copyright (c) 2012 Dow Jones & Company, Inc.

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