Argentina ordered to pay US$16 billion in YPF lawsuit

Argentina was ordered to pay at least US$8.4 billion in damages and US$7.6 billion in interest in a US lawsuit over its 2012 re-nationalisation of state oil company YPF SA, a sharp blow as the Latin American country’s financial situation has grown increasingly precarious.

US District Judge Loretta Preska in Manhattan on Friday set a formula for the award to entities backed by litigation funder Burford Capital. The judgment originally stated that the Argentine government had control of YPF from April 2012 but that a prejudgment interest rate of eight percent should run from May 2023. The second date was subsequently corrected to May 2012, almost doubling the size of the award to US$16 billion.

Argentina's government called the award “unprecedented and erroneous” in a statement and said it would appeal. A challenge will likely delay payment for months or even years but could also complicate the country’s efforts to return to global debt markets.

“This case over the rights of former shareholders of an Argentine company under the Argentine company’s bylaws does not belong in a US court,” the government said.

Burford, which acquired the right to pursue the claims for US$16.6 million in 2015, has said it would collect the biggest share of the award. Shares in the firm jumped as much as 28 percent in US trading to reach their highest level since August 2019.

“I’m pleased to see this extraordinary win and the value it could create for our shareholders once we complete the litigation process and collect from Argentina,” Burford Chief Executive Officer Christopher Bogart said in a statement. “The Ruling is a major milestone for Burford and we continue to see momentum in our overall portfolio and continued demand for our capital and services.”

The judgment offers some vindication for the firm’s business model. Major litigation funders have touted their ability to strategically invest in lawsuits they predict will deliver outsized recoveries, but many have struggled to identify such opportunities.

Argentina on August 14 devalued its peso after running low on US dollars to back the currency. The dire state of the nation’s cash-strapped economy is the central issue in the ongoing presidential election. With dollar reserves at their lowest since 2006, it’s unclear how the next government will be able to pay large maturities to bondholders next year. Argentina also owes tens of billions of dollars to the International Monetary Fund.

But it was the actions of the Argentine government a decade ago which factored in Preska’s judgment. She already ruled in March that then-president Cristina Fernández de Kirchner’s administration failed to fairly compensate shareholders when it took over YPF, the nation’s largest oil company. That left only the amount of damages to be determined during a three-day trial in July.

Argentina had asked the judge to limit the award to less than $5 billion, while the plaintiffs asked for US$16 billion.

Argentina seized control of 51 percent of YPF in 2012 after accusing the majority shareholder, Spanish company Repsol SA, of failing to invest sufficient resources into oil production. At the time, Argentina was already fighting claims by investors led by Paul Singer’s Elliott Management over its 2001 default on $95 billion in sovereign debt, and the YPF takeover further contributed to a perception of the country as an inhospitable place for foreign investment.

Preska found that the by-laws of the company, which had been privatised in the 1990s, required any future re-nationalisation to be accompanied by a tender offer at a predetermined price. But when an expropriation came in 2012, Deputy Economy Minister Axel Kicillof called the requirement a “bear trap” that only “fools” would expect Argentina and YPF to honour, according to a court filing.

After finding Argentina liable in March, Preska ordered a trial to determine damages based on the date on which the nation took control of YPF and the amount of any prejudgment interest.