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Argentina is liable to pay around $16 billion to two former shareholders of oil giant YPF after a New York judge ruled that the company was illegally renationalized, one of the largest judgments ever handed down by a U.S. court against a foreign sovereign gold.
The judgment is the culmination of a bitter dispute between Argentina and two of YPF’s defunct investors, Petersen and Eton Park, whose claims are largely funded by litigation finance giant Burford Capital. Shares of Burford soared 17% after the decision was announced Friday.
Originally established in 1922 as a state-owned company, YPF was privatized in 1993. In 2012, the government of former President Cristina Fernández de Kirchner passed an expropriation law that gave the government a controlling stake in the company, effectively returning it to the state. The majority stake in the group was previously held by Spanish oil company Repsol.
Argentina was ultimately forced to pay Repsol for the takeover, paying 8 percent interest on $5 billion worth of government bonds.
However, minority shareholders, including plaintiffs Peterson and Eaton Park, argued that Argentina had failed in its obligation to make a tender offer for the remaining shares to other investors. They claim they are owed billions of dollars in damages, as well as interest “for more than a decade as they have been forced to act as involuntary creditors in Argentina.”
After Argentina bought a 25% stake in YPF, Petersen went bankrupt and its loans could no longer be repaid through dividend payments. Eton Park ceased operations in 2017 after years of poor performance.
Judge Loretta Preska found Argentina responsible in March and scheduled a three-day judge trial to decide Peterson and Eaton Park’s damages, as well as the appropriate level of interest.
The plaintiffs argued at trial that they were owed a total of $16.05 billion, including $8.43 billion in damages and $7.62 billion in interest. While Preska didn’t name a specific amount in her 25-page judgment, she largely sided with the plaintiffs, except that she disagreed with a date on which interest would begin to become due and pushed that date back by a few weeks.
In his ruling, Preska also cited a 2012 statement by then-Political and Economy Minister Axel Kicillof, in which he said compliance with “the YPF’s own charter” or “respect for its Charter” is “stupid”. Argentina “subsequently enacted legislation that allegedly allowed it to gain control of the YPF without being ‘stupid’ and complying with the charter,” she added.
Lawyers for Argentina argued that the matter does not belong in U.S. courts and is protected by sovereign immunity. However, the U.S. Supreme Court declined to hear its appeal, clearing the way for the lawsuit to continue. Argentina said in a statement on Friday that it “strongly rejects the district court’s unprecedented and erroneous ruling” and planned to appeal it.
Jonathan Molott, Burford’s chief investment officer, said the case exemplifies “the firm’s contribution to the civil justice system — without us, there would be no justice in the complex and long-running case of Peterson and Eton.”
The company added that it now “needs either a negotiated settlement with Argentina on the matter, which would certainly result in a potentially substantial discount to the judgment, in exchange for an agreed payment, or enforcement action against Argentina, which would certainly result in a substantial discount to the judgment. “The duration may be extended”.
Paying such a large sum would be challenging for the state if appeals or settlement talks fail. Argentina’s net foreign exchange reserves, excluding liabilities, are estimated at about $4.5 billion, said Fernando Marull, founder of Buenos Aires-based economic consultancy FMyA. “There is currently no money to pay this compensation,” he said.
In other cases, Argentina has raised money by issuing new debt to pay recalcitrant creditors, Marul added. But Argentina has been shut out of international credit markets and is struggling under pressure from local creditors to snowball debt and repay 2018 loans from the International Monetary Fund.
Daniel Montamat, a former energy minister and YPF chairman in the 1980s, said officials “failed to follow the steps required for expropriation” and “should have consequences – maybe not punishment, but at least in terms of compensation — to the officials who make these decisions that have long-term consequences for the country.”
This is not the first time Argentina has been in the limelight in U.S. courts. In 2016, the center-right government of Mauricio Macri paid more than $100,000 to a small group of bondholders led by Paul Singer’s Elliott Capital. $2 billion, the latter refused to refinance debt after Argentina’s economic collapse in 2001.
Argentina’s populist Peronist movement denounces “vulture funds” of creditors who reap huge returns on their initial investments. Macri’s decision to repay the debt by taking on new debt remains controversial.
Kisilov, now the governor of Buenos Aires province, said on Wednesday that the government had “restored the YPF” because “our unconventional oil and gas reserves do not belong to private or foreign companies, they belong to the Argentine people and They should be used for their development and well-being”.
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