Argentina is liable to pay damages of approximately $16bn to two former shareholders of the oil major YPF after a judge in New York ruled the company had been unlawfully renationalised, one of the largest-ever judgments against a foreign sovereign by a US court.
The judgment is the culmination of a bitter dispute between Argentina and two defunct investors in YPF, Petersen and Eton Park, whose claims were funded in large part by litigation finance powerhouse Burford Capital. Shares in Burford soared 17 per cent after the decision was published on Friday.
Originally founded in 1922 as a state-run company, YPF was privatised in 1993. It was effectively brought back into state hands in 2012 after former president Cristina Fernández de Kirchner’s administration passed an expropriation law, which led to the government gaining a controlling interest in the group via a majority stake previously held by Spanish oil company Repsol.
Argentina was eventually forced to compensate Repsol for the takeover, with $5bn worth of government bonds paying 8 per cent interest.
However, smaller shareholders, including plaintiffs Petersen and Eton Park, argued that Argentina had not complied with its obligation to make a tender offer to other investors for the remaining shares. They claimed they were owed billions in compensation, as well as interest for “being forced to serve as Argentina’s involuntary creditors for over a decade”.
Petersen went bankrupt after Argentina took its 25 per cent stake in YPF, and its loans could no longer be serviced by dividend payments. Eton Park wound down its operations in 2017 following years of sub-par performance.
Judge Loretta Preska found Argentina liable in March, and set a three-day bench trial to decide on the damages to be awarded to Petersen and Eton Park, as well as the appropriate level of interest.
Plaintiffs argued at trial that they were owed a total of $16.05bn, comprising $8.43bn in damages and $7.62bn in interest. While she did not mention a specific sum in the 25-page judgment, Preska largely sided with plaintiffs, disagreeing only with the date on which interest had begun to be due, which she moved by a few weeks.
In her ruling, Preska also cited statements made in 2012 by then-political economy minister Axel Kicillof, in which he said it would be “stupid” to comply with “YPF’s own bylaws” or “respect its statutes”. She added that Argentina “subsequently enacted the legislation that, purportedly, allowed it to acquire control of YPF without being ‘stupid’ and complying with the bylaws”.
Argentina’s lawyers had argued that the matter did not belong in a US court, and that it was protected by sovereign immunity. However, the US Supreme Court refused to take up its appeal, clearing the way for the lawsuit to proceed. In a statement on Friday, Argentina said it “respectfully disagrees with the district court’s unprecedented and erroneous decision” and plans to appeal against it.
Jonathan Molot, Burford’s chief investment officer, said the case exemplified “the contribution [the firm makes] to the civil justice system — without us, there would be no justice in this complicated and long-running case for Petersen and Eton Park.”
The company added it now would “either need to negotiate a resolution of the matter with Argentina, which would certainly result in what would likely be a substantial discount to the judgment amount in exchange for agreed payment, or engage in an enforcement campaign against Argentina which would likely be of extended duration”.
If an appeal or settlement talks fail, paying such a large sum would be a challenge for the country. Argentina’s net foreign exchange reserves, excluding liabilities, are estimated to be about $4.5bn in the red, according to Fernando Marull, founder of Buenos Aires-based economic consultancy FMyA. “Right now there is no money to pay this compensation,” he said.
Argentina has made payments to holdout creditors in other cases by issuing new debt to raise the money, Marull added. But Argentina is already locked out of international credit markets, and it is struggling under a snowballing pile of debts to local creditors, and repayments for its 2018 loan from the IMF.
Daniel Montamat, a former energy secretary and YPF president in the 1980s, said that officials “had not respected the steps that were required to carry out an expropriation” and that “there should be consequences — maybe not penal but at least in terms of compensation — for the officials who took these decisions that are having long term consequences for the country”.
This is not Argentina’s first high-profile US court battle. In 2016, the centre-right government of Mauricio Macri paid more than $2bn to a small group of bondholders, led by Paul Singer’s Elliott Capital, who refused to refinance debt after Argentina’s economic collapse in 2001.
Argentina’s populist Peronist movement condemned those creditors, who received large returns on their initial investments, as “vulture funds.” Macri’s decision to pay by taking out new debt remains controversial.
Kicillof, who is now governor of the Buenos Aires province, said on Wednesday that the government had “recovered YPF” because “our non-conventional oil and gas reserves don’t belong to private or foreign companies, they belong to the Argentine people and they should be used for its development and wellbeing”.