European firms count cost of Argentina’s currency crisis

European firms count cost of Argentina’s currency crisis
Mauricio Macri: Argentine stocks and currency have plummeted after Macri was snubbed by voters. Picture: AP

By Phil Serafino

European companies, for the most part, have little exposure to Argentina, thanks to decades of economic boom-and-bust and wild currency swings.

But the few that do have sizeable operations in the country are paying the price this week as a political upset upsets markets.

Shares of Spanish security services company Prosegur Cia de Seguridad and its Prosegur Cash unit have each dropped more than 20% this week.

Tenaris, a Luxembourg-based maker of steel tubes that has its roots in Argentina, has dropped 3.7% while Italian construction company Salini Impregilo has lost 5.4%. And Spain’s telecoms giant Telefonica has fallen 2.2%.

The Argentine currency and stocks and bonds plunged following President Mauricio Macri’s stunning rout in primary elections over the weekend. The resounding victory by the centre-left opposition leader Alberto Fernández in Sunday’s vote alarmed investors if he wins October’s presidential vote.

Mr Macri’s loss raised the prospect a populist government may take over and trigger another debt default. While not all companies break out how much revenue they get from individual countries, it’s clear some have substantial exposure.

Prosegur Cash, which handles transportation and management of cash, has nearly 5,000 staff in Argentina, more than any country except Brazil. Its parent, Prosegur, employs about 18,000 people in Argentina.

Tenaris, an Italian-listed company that makes tubes for the energy industry, began with Siderca, an Argentine pipe producer, in 1948, according to Tenaris’s annual report. The company began expanding beyond Argentina in the 1990s.

About 24% of its employees work in Argentina, and the company’s high inflation, currency swings and energy shortages are mentioned as a key risk of the business.

Salini Impregilo has won two contracts to work on a project to clean the Riachuelo river in Argentina, and the company also has investments in toll roads and energy and water facilities in the country.

Telefonica and Belgian brewer Anheuser-Busch InBev have a small exposure to Argentina as well, although analysts see a limited impact on the shares from the current turmoil.

The country accounts for just 2% of InBev’s underlying earnings, according to Bernstein analyst Trevor Stirling. Telefonica’s operating cash flow will probably take a hit of less than half a percentage point.

Mr Fernandez’s positions are closely watched on the key economic issues facing South America’s second-largest economy, which is battling recession, runaway inflation, and rising poverty levels.

Mr Fernandez, regarded as a moderate within the Peronist movement, has proposed an economic and social pact to combat inflation, which is currently running at 55%.

Mr Macri sought to slow inflation with government spending cuts and strict monetary policy. The central bank sought to dry up liquidity using high-interest rates, which reached 74%. Mr Fernández, by contrast, said he will seek to lower interest rates to revive the economy and stimulate consumption.

And Mr Fernandez must delicately manage the relationship with the IMF, from which Mr Macri received a loan for $57bn in exchange for tough fiscal commitments. Mr Fernandez, who met with IMF officials during the campaign, has said he will seek to renegotiate the agreement but has not provided specific details.

“The current economic programme is not our programme. It commits our country well beyond its own possibilities,” he said after meeting the IMF in June. He has emphasised that a return to economic growth was crucial for Argentina to pay off its debts.

- Bloomberg. Additional reporting by Reuters

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