Financial Strategy At YPF
YPF was the formerly state-owned and largest company in Argentina in 1995. It was privatized in 1993, and was planning its second annual capital budget as a private-sector company in the fall of 1994. When the Tequila Crisis hit Mexico in December of 1994, international borrowing became much more difficult for emerging market borrowers in general and Argentine borrowers in particular. This case presents the situation that faced YPF at the Beginning of 1995, after most of the pieces of its capital budget had been laid out but not finalized at the end of 1994.
The teaching emphasis for this case should most likely be on the financing strategy of a large Latin American company during the Tequila Crisis. A reasonable strategy can be defined, given the various capital budgeting needs that are presented in the case, ignoring the Tequila Crisis. It is clear, for instance, that YPF can borrow plenty of money through debt issue, since its financial leverage is much less than that of major oil companies such as Exxon, Shell, and Texaco. The issuance of more ADRs could be justified as part of the total financing, although YPF has issued $US 3 billion in 1993 at the time of the privatization, so this may be difficult to accomplish in early 1995.