YPF arbitrage (US versus Argentina)

Discussion in 'Stocks' started by m22au, Apr 18, 2012.

  1. m22au


    YPF price at 12.01pm
    14.94 US Dollars

    YPFD price at 12.01pm
    91.80 Argentine pesos

    ARS/USD is about 0.2277

    0.2277 * 91.80 = 20.90

    So the ADRs are trading at a noticeable discount to the shares listed in Buenos Aires.

    I found discussion of this arbitrage on the Yahoo messageboard for YPF:


    One suggested reason for the price difference between the two securities is
    "BA places restrictions on taking funds out of the country"
  2. Long the ADR, short the natural at 600bp to the sell. You would need to net the exposure in short USD/ARS and you will do well on the swap. The problem is credit as Argentina looks like utter dogshit. Risk of devaluation and of course the spread can sit or widen. The haircut on retail would not recognize the spread, and you have to carry the spot or fwd FX hedge (another haircut).

    I would think you would need access to equity swaps to make it worthwhile. Simply too capital-intensive to carry haircut on three positions.

    I would go no more than half-notional on the FX hedge if you can work a local ARS-account on the short.
  3. m22au


    Thanks for looking at this atticus. The country-related risks are huge as you note.

    However what about an ADR conversion? ie:

    buy the ADR,
    get one's broker to convert to the (Argentine) common stock,
    sell the common stock
    convert ARS proceeds to USD

    The main questions then are:

    * finding a broker who is happy to arrange the conversion with the ADR custodian
    * finding a broker who can sell the (Argentine) common stock
    * being able to convert the ARS to USD and getting that money out of Argentina.
  4. No idea, not my area of expertise. I have done closed-end arbs and similar stuff, but assume that the barrier is large due to that 600bp premium.