Investing in Argentinean Wineries

At the southern end of Argentina’s Uco Valley in the foothills of the Andes, Jose Manuel Ortega Gil-Fournier is helping make investors’ dreams of producing wine from their own vineyards come true.

An investment banker at Goldman Sachs Group Inc. (GS) (GS) and Banco Santander SA (SAN) before leaving the world of finance in 2006, Ortega is selling 140 hectares of land planted with malbec and other varietals for $150,000 per hectare.

More importantly, he promises to do all the work in caring for them. Ortega is counting on the allure of vines that produced his 93-point Alfa Crux Blend (2003) and 94-point O. Fournier Syrah (2002) to distinguish him from other sellers of personal lots in Mendoza province, the hub of the country’s wine industry.

“The Uco Valley is producing not just the best wines in Argentina but some of the best in the world,” said Daniel Pita, a hedge fund lawyer from Sao Paulo who bought into the Ortega project without ever having visited Mendoza. “If you look at other regions that are famous for good wine, like Bordeaux and Napa, you can’t even think about investing there.”

There are many reasons to invest in wineries, but the problem for those promoting investment in Argentina is the government. The nationalisation of the Spanish oil company YPF means that many investors will be concerned about placing money in Argentina. This is unfortunate for the Argentinean wine industry as their cost structure, including cost of land, makes it an attractive proposition if it weren’t for the fear of government intervention.

Putting money into Argentina, whether you’re talking land, companies or bonds, may seem risky given its history of defaults, devaluations and confiscations.

President Cristina Fernandez de Kirchner surprised investors in April when she seized YPF SA, the country’s biggest oil company, from Spain’s Repsol YPF SA. (REP) In December, Congress passed a law blocking foreigners from owning large swaths of rural land.

“It is of concern but I don’t really believe that the nationalization trend is going to be widespread,” said Tom Biery, a co-founder of Houston-based oil and gas producer Quail Creek Companies, who’s looking forward to serving his own Uco Valley wine at parties in a few years. “And while our investment isn’t insignificant, it isn’t huge either.”