What is Renationalization
Renationalization is the process of bringing assets and/or industries back into government ownership after they had previously been privatized. The motives for renationalization can vary widely, but are always based in either economics or politics.
Renationalization often occurs in sectors that are required for the country to operate smoothly, or where monopolies must occur. Examples of sectors that are commonly renationalized are utilities and transportation. If no compensation is given to the previous owners, this process is called expropriation, and is commonly seen in times of war or revolution.
BREAKING DOWN Renationalization
Renationalization can be a risk for investors who buy shares in the industries of a developing country. Developing countries might begin to privatize industries and assets previously under national control and allow foreign investment for the first time. Should the privatization not work, or should political instability prevail, renationalization could occur. In such a case, the largest risk would be that little or no compensation would be given to the previous owners (i.e., shareholders).
The experience in Argentina serves as a prime example of renationalization. Under President Juan Peron, many of the nation's industries were nationalized. Starting in the 1990s, the Argentine government embarked on a program to privatize a host of national assets including radio, television, telephone, tolls, roads and railways, the national airline, steel, petrochemicals, shipbuilding, electricity and hydroelectric plants, oil and gas, mortgage lending, and its public pension system.
But with new political leadership in the early 2000s, and after poor management in some of the privatized industries, the process of renationalization commended on a piecemeal basis. Argentina’s postal service, radio spectrum, and later its water supply, sanitation system, and shipyards were renationalized. Still later, national airline Aerolíneas Argentinas, the pension fund, the national oil company, and railway went the same route.
The results of these moves have been traumatic for shareholders, to put it mildly. Argentina, for example, under an expropriation law in 2012 took 51% of the shares of its biggest oil producer, YPF, which were owned by Spanish oil company Repsol S.A., declaring it of "public interest." Shares of YPF and Repsol were disrupted, though the Spanish oil company did later receive a financial settlement from the Argentine government.
Some six years later, YPF shares had more than doubled from their lows of 2012 and revenue topped $15 billion with strong profits. The company is the largest in its sector in Argentina and employs 14,000 people.