Argentina to appeal against US court order to surrender its controlling stake in YPF

Judge Loretta Preska's ruling calls for Argentina to surrender its majority stake in YPF  

WHAT: A US judge has ordered Argentina to surrender its 51% stake in national oil company YPF

WHY: The $16bn in damages is partial compensation for Argentina’s controversial 2012 nationalisation of YPF

WHAT: NEXT Argentina will appeal against the judgment

A US court has ordered Argentina to surrender its 51% controlling stake in national oil company YPF as partial compensation for its controversial 2012 nationalisation of the energy giant, dealing a significant financial blow to the administration of the libertarian president Javier Milei.

This comes after the US Department of Justice (DOJ) intervened in the case, supporting the Argentine government’s position against forced divestment of its stake.

Judge Loretta Preska's ruling, announced on June 30 and which calls for $16bn in damages, stems from Argentina's seizure of 51% of YPF from Spanish oil major Repsol in 2012, a move orchestrated by former president Cristina Fernández de Kirchner, who is now Milei’s political rival.

The renationalisation seizure had raised serious questions about investment security in South America's third-largest economy, which remains cash-strapped.

Two minority shareholders, Petersen Energia Inversora and Eton Park Capital, backed by litigation funder Burford Capital and who together held 25.4% of YPF's capital, filed suit the US in 2015 alleging they received inadequate compensation and that their rights were thus violated during the nationalisation process.

The plaintiffs claimed Argentina failed to submit a proper takeover bid as required by law. They say they are now owed over $17bn, with interest accruing at around $2.5mn daily.

2023 ruling

In 2023 Judge Preska, of the Southern District of New York, had ordered Argentina to pay damages and interest, which now amounts to $7.5bn in damages plus $6.85bn in interest to Petersen Energia, while for Eton Park Capital it is approximately $1.7bn in combined damages and interest.

The sum awarded was a record amount for the court at the time, noted the Financial Times (FT). The judge had also weighed the possibility of seizing YPF assets as compensation.

On June 30, she ordered Argentina to transfer “51% of YPF Class D shares” in YPF within 14 days to an intermediary, a global custody account at the Bank of New York Mellon. Ownership will then be transferred to the judgment’s beneficiaries or their designees.

Milie was quick to respond. "We will appeal this decision in all appropriate courts to defend national interests," he wrote on X shortly after the June 30 judgment was published, signalling the government's intention to fight the ruling through higher courts.

He blamed the opposition Peronist movement for the legal turmoil, including his political rival Axel Kicillof, the left-wing ex minister of the economy who had presided over the YPF renationalisation.

“Regardless of the stupidity of Kicillof and all those who governed us before, Argentines should know that we will appeal [against] this ruling in all appropriate instances to defend our national interests,” he said on X. “P. S. I told you the Soviet was an idiot!”

Argentina says it cannot pay

Argentina argued that it cannot pay the judgment. It had declined to post collateral while the appeal was being heard, and did not enter negotiations with the judgment creditors, said the FT.

Sebastian Maril, a director at consultancy Latam Advisors, told the FT: “With this judgment, Preska is saying that Argentina has been ignoring all of this court’s decisions and now it’s time to pay up.”

He added: “This is a wave that has been building for years and is now breaking over Milei.”

La Nación noted that the party that loses the case has the right to file an appeal to the US Supreme Court.

The US justice department of ex-president Joe Biden had asked Preska not to grant the plaintiffs’ request for the shares of YPF, saying that doing so would undermine the sovereign immunity of Argentina.

For their part, lawyers for the Latin American country had insisted that the principle of international comity meant that Preska should reject the plaintiffs’ argument. International comity is where one country, out of courtesy and respect, chooses to defer to the laws and judicial decisions of another, even when not legally obligated to do so.

An institution

YPF, a century-old Argentine institution employing over 22,000 workers, was privatised in the 1990s before gradually falling under Repsol's control. Although Argentina reached a $5bn settlement in 2014 with Repsol over the renationalisation, the minority shareholders' 2015 case has persisted for a decade.

This latest legal setback represents a significant challenge for Milei's administration, forcing him to defend policies implemented by his political rival Kirchner while potentially jeopardising state control of Argentina's most strategic energy asset at a time when the country seeks to maximise revenue from its vast Vaca Muerta shale reserves.

Lawyers for Argentina have meanwhile asked the High Court in London to pause enforcement of the American judgment, until an appeal by the Argentinian government has been heard in the US courts. Petersen and Eton Park had last year applied to the English court for recognition of the 2023 ruling and enforcement in the US, which had favoured them.

The case should be put on hold, said Argentina’s lawyer David Railton, noting that the investors would suffer no prejudice because "there are no assets [in the UK] against which the judgment can be enforced," reported Bloomberg.

Petersen and Eton Park have accused Argentina of trying to postpone enforcement. Paul McGrath, their lawyer, has argued that Argentina's application should be rejected but if the court does decide to pause the case temporarily, Argentina should be required to post some $2.5bn in security.

YPF has been benefitting recently from development in the Vaca Muerta shale basin, noted Oilprice.com. Rystad Energy in June reported that output from the Vaca Muerta had reached 447,000 barrels per day in March, compared with 354,000 bpd a year earlier.