Argentina suffered a serious legal defeat this Friday in the US courts in the case against the South American state for the expropriation of YPF in 2012 under the presidency of Cristina Fernández de Kirchner. Manhattan District Judge Loretta Preska ruled in March that Argentina had “breached its contract with YPF,” but the amount of compensation remained unknown. In his ruling on Friday, he did not give a specific figure, but considered the compensation system proposed by the Burford Capital fund, which asks for about $16 billion, to be appropriate. The Argentine government has already expected to appeal.
The judge ruled in favor of Burford Capital and considered that the expropriation date was April 16, 2012, when the then economy minister and current Buenos Aires governor, Axel Kicillof, was appointed as the company’s auditor. Argentina requested that the expropriation law be passed on May 7, 2012. The oil company’s shares fell 25% in those three weeks, which could make a big difference in determining compensation. However, Preska also supports the plaintiffs’ valuation model, which uses the highest price-to-earnings ratio of the two previous years of listing and not the one immediately before the obligation to make the offer, so the difference would not have been so much with one or the other other date.
Using this valuation system, Burford claimed $8.43 billion plus interest. In a 25-page ruling, Preska also agreed with the litigants and set an interest rate of 8%, although it was a simple interest rate and not compound interest, which would have pushed the bill even higher. The judge had published an initial version of her decision in which she indicated that the interest would be counted from May 2023, which initially caused confusion. Then it was corrected that 8% had to be paid since May 2012, according to the final judgment.
The judge invited the parties to submit their final proposals in accordance with her decision setting the final amount. In any case, the decision can be appealed to a higher court, so it could be years before a final decision is made.
Burford Capital is a fund that specializes in purchasing the litigation rights of bankrupt companies to file lawsuits for large sums of money, a method similar to that used by debt vulture funds. The fund sued the Argentine state after acquiring the rights to Petersen Energía Inversora and Petersen Energía, two Spanish companies belonging to Argentina’s Eskenazy family group, which owned 25% of YPF’s shares.
These companies are bankrupt because they went into debt to buy their stake in YPF, which was devalued by the expropriation. The Spanish company Repsol loaned them 1.5 billion. The oil company pledged YPF shares against non-payment and could now recover part of the outstanding debts in the bankruptcy proceedings. The fund is entitled to around 70 percent of the compensation, the rest goes to the previously insolvent companies against which the lawsuit was filed in 2015. Shares in London and Wall Street-listed Burford jumped more than 20% when the decision was announced. The company has notified the U.S. Securities and Exchange Commission that it will make an assessment of the ruling after reviewing and analyzing the decision.
In her March decision, the judge had already ruled in favor of the plaintiffs, considering that the State had not offered compensation to all shareholders when it decided to sell the 51% of YPF shares held by Repsol decided to nationalize. According to the YPF Articles of Association, if someone buys more than 15% of the company, they should offer everyone the same.
Preska has excluded the company from the litigation. This means that the Argentine state and not the company (which has 49% of its shares privately owned) must pay the compensation.
Argentina is unable to make this payment. The blow, caused by an unprecedented drought on the Argentine countryside, the country’s economic engine, has left central bank reserves at their lowest level in 2023. Argentina has a record history of defaults in recent decades and has very limited access to credit markets. Its public debt exceeds $400,000 million, equivalent to 85% of GDP, and the government had to refinance the $44,000 million loan received from the International Monetary Fund in 2018.
The verdict, against which Argentina will appeal, will be announced in the middle of the election campaign. Kirchnerite Axel Kicillof is seeking re-election as governor of Buenos Aires province, Argentina’s most populous province, while current Economy Minister Sergio Massa is a presidential candidate. His rival Patricia Bullrich from the center-right opposition coalition Together for Change used the ruling to target the government. “I have always spoken out against the barbarism of expropriation without respecting the constitution. Now let them pay for it out of their own pocket,” he tweeted.
The general elections are scheduled for October 22nd. If no presidential candidate wins with 45% of the vote or reaches 40% by a 10-point margin over the second, a second round will be held on November 19 between the two candidates with the most votes.
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