State takes over industrial firm IMPSA

State takes over industrial firm IMPSA

On May 31st government officials confirmed that the state would capitalise an industrial conglomerate, IMPSA, effectively becoming the majority shareholder. Following the purchase of US$20m in new shares, the federal government will own 64% of the company, with the provincial government of Mendoza owning an additional 21%. The bailout came at IMPSA's own request, owing to its distressed finances. We do not believe that the takeover is a prelude to a new wave of expropriations.

IMPSA is an industrial firm that produces a wide range of products and services related to energy, infrastructure and technology. The company's financial woes began in 2010 following the failures of two major international projects—a wind farm in Brazil and a hydroelectric dam in Venezuela. The failed projects led the company to become increasingly leveraged, with its debt rising from about US$200m in 2010 to US$1bn in 2015. As a result, IMPSA defaulted in 2014 and began a process of restructuring its debt in 2015. As part of the restructuring, 65% of the company's capital was handed over to a trust made up of institutional investors, multilaterals, state-owned banks and others.

Plans to sell the firm to other private players had been in the works but were derailed by the onset of the coronavirus (Covid-19) pandemic. It is in this context, and on the verge of bankruptcy, that IMPSA's board requested a bailout from the government, even if it meant nationalising the company. For its part, the government agreed to the bailout, viewing it as a strategic investment. The firm employs over 700 people and contracts more than 100 local small and medium‑sized enterprises (SMEs). Furthermore, despite its ongoing travails, IMPSA has the potential to draw in new streams of revenue, particularly once the post-pandemic recovery is in full swing. The bailout will help the firm to rebuild its working capital and participate in energy tenders, both domestically and abroad.

Although government takeovers of strategic businesses can be contentious—as seen during the government's (ultimately aborted) attempt to expropriate Vicentin, a soybean exporter—we do not expect this particular takeover, which came at IMPSA's request, to be as controversial.

Our forecasts are unchanged. The state's takeover of IMPSA will have only a marginal impact on the public finances. We do not believe that the move is a harbinger of a new movement towards nationalisations in Argentina.