There is a silver lining for Javier Milei in a multibillion-dollar US judgment targeting Argentina’s main oil producer: at least some investors see the La Libertad Avanza leader as having a shot at finally putting an end to a long-running legal saga.
Milei, they sense, now has no choice but to negotiate a settlement over the future of state-run YPF SA with Burford Capital, a litigation firm representing minority shareholders affected by the nationalisation of the company in 2012.
And although any deal is certain to be painful for Argentina in the short-term, Milei has the chance to win over investors he needs to attract to his country by providing the sort of certainty they’ve long craved.
“There’s now the possibility for Milei to reach a very market-friendly agreement,” said Paula Gandara, the chief investment officer at Adcap Asset Management in Buenos Aires. “That could ultimately result in a lower country risk and a re-entry to capital markets.”
It’s a perhaps rosy view of the dilemma a US federal judge created for Milei this week, when she ordered Argentina’s cash-strapped government to give up its controlling stake in YPF to help satisfy a US$16-billion court judgment.
Still short on foreign reserves and expected to make more than US$4 billion in payments to international bondholders next week, Argentina can’t afford to pay. Milei needs congressional approval to hand over the shares. And the President who has refused to negotiate with Burford since taking office in 2023 plans to appeal the ruling, his spokesman Manuel Adorni said on social media Tuesday.
Argentine assets, including sovereign bonds and the peso, lost value in the wake of the ruling. New York-traded shares of YPF saw its biggest single-day drop since April and failed to recoup those losses since then. Meanwhile, Burford’s shares soared after the order before paring Monday’s gains.
Some legal experts remain sceptical, arguing that negotiating a costly settlement with Burford is at best premature and even potentially illegal.
“Argentina’s budget law impedes the government from reaching an agreement in the absence of a final sentence of conviction, which isn’t the case here because it is being appealed,” said Bernardo Saravia Frias, a former Treasury attorney under former president Mauricio Macri.
But bullish corners of the market nevertheless expect that the order will eventually force Milei to the table, even if it’s unlikely that YPF ever ends up in Burford’s portfolio.
“In the end, Argentina will retain YPF,” said Jeff Grills, emerging-markets portfolio manager at Aegon Asset Management. “Now it’s just one step closer to having to settle this.”
Market Incentives
Argentina’s eagerness to return to capital markets by 2026 may provide a major incentive for talks.
Government officials told fixed-income investors earlier this year that they want to wait until yields on sovereign bonds edge below 10 percent before exploring a global debt sale. The legal conundrum has threatened those aims because uncertainty around it risks affecting how much Argentina would have to pay to borrow money abroad.
“Having that large claim hanging over the government would impact the cost of capital for them. They have to clear it at some point,” said David Austerweil, emerging-markets money manager at VanEck in New York. “Given they don’t have that much money, they have to pay with bonds.”
Currently, some of the country’s notes yield between 10 percent and 12 percent when measuring yield-to-worst, a metric that assumes several scenarios but not a default, according to pricing data compiled by Bloomberg.
It’s plausible Economy Minister Luis Caputo could assuage investor fears over the Burford spat by saying “something charming” even without a resolution, Austerweil said.
But the politics of the saga may provide another strong motivation to talk. YPF’s nationalisation was carried out under former president Cristina Fernández de Kirchner, a standard-bearer of the Peronist political establishment Milei has blamed for Argentina’s litany of economic ills.
It was led by then-economy minister Axel Kicillof, who as the current governor of Buenos Aires Province poses one of the biggest threats to Milei from the left now that Fernández de Kirchner is serving a jail term under house arrest.
Before the Burford ruling, Milei had been on a winning streak heading into October midterm elections that will serve as a referendum on his shock therapy policies: inflation has slowed, the economy is growing and the government is producing primary budget surpluses on a monthly basis.
There are no shortage of risks associated with negotiations, especially given Argentina’s need to shore up foreign reserves to meet the terms of its latest deal with the International Monetary Fund.
But they also provide Milei another chance to score a victory, Adcap’s Gandara said, “by sitting down and declaring: ‘I can put an end to the problems I’ve inherited.’”
by Manuela Tobias & Kevin Simauchi, Bloomberg
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