US court gives Argentina three more days to surrender its YPF shares

Time is ticking and stakes are mounting as Argentina faces setback after setback in the case opened in the U.S. justice system over the 2012 expropriation of the YPF oil company. On Monday, a lower court rejected the defense’s request and upheld the order to transfer 51% of YPF shares held by the Argentine state to the so-called vulture funds that sued the country and obtained a favorable ruling. The government of Javier Milei has until Thursday, to either reach an agreement with the plaintiffs or hand over the YPF shares to them.

The de facto privatization ordered by the judge would be part of the $16.1 billion payment the Argentine government was ordered to make in 2023 for failing to offer equal treatment to all shareholders in 2012, when it seized the YPF stake from Spain’s Repsol without making a tender offer to minority shareholders Petersen and Eton Park. If it does not surrender the shares, the Argentine government risks being declared in contempt. The Javier Milei administration has already appealed the decision, but it is unknown whether it will rule before the 72 hours granted by Judge Loretta Preska expire.

Judge Preska, a judge in the U.S. District Court for the Southern District of New York, ruled on Monday against Argentina, arguing that it “made no effort to satisfy the conditions required by the court” in its ruling two weeks ago. The Treasury Attorney General’s Office, the agency in charge of Argentina’s defense, had requested a stay of the order, arguing that irreparable harm would result, but Preska said in her brief that “any alleged harm arises directly from the Republic’s own actions in delaying and attempting to evade its obligations under the judgment.”

The narrow margin granted by Preska puts Argentina in a tough spot. A meeting between the defense attorneys and the funds is scheduled for Tuesday, but experts believe it is very unlikely they will reach an agreement, despite the mounting court pressure on the Argentine government.

At the time of the nationalization in 2012, 57.5% of YPF was held by the Spanish energy giant Repsol, 25.5% by Petersen Energía Inversora and Petersen Energía — two Spanish companies belonging to Argentina’s Eskenazi family — and 17% by minority investors. In 2014, the Argentine government agreed to pay Repsol $5 billion for the 51% of the shares it had expropriated.

Burford Capital, a fund that that buys the rights to litigation from bankrupt companies to pursue large-sum claims, purchased a large portion of YPF shares held in Spain by the insolvent Petersen Group companies, and filed a lawsuit in the United States with Eton Park, one of the minority shareholders.

In 2023, Preska ordered Argentina to pay close to $14.4 billion to Burford Capital and another $1.7 billion to Eton Capital, arguing that the Argentine government should have offered the same treatment it gave Repsol to the remaining shareholders at the time of the expropriation, as established by YPF’s bylaws. If it receives the compensation, Burford would retain 70% of its share, and the other 30% would go to the Eskenazi family companies.

Preska excluded the oil company, which retains 49% of the shares in private hands, from the litigation. This means that the state must assume payment if the ruling is final. The amount set by the judge is compounded by substantial interest, which increases by $2 million per day.

The Argentine government is unable to comply with the ruling. Not only because its international reserves are in the red, but also because the YPF nationalization law prohibits the executive branch from transferring expropriated shares without prior authorization from Congress.

A last-resort appeal

The arguments of Argentina’s successive defenses — which have changed with each of the three presidents of the last decade — have crashed against the wall of the U.S. lower courts. The defendant is now relying on appeals, but has indicated that it will go all the way to the Supreme Court if it obtains another unfavorable ruling.

Argentina is criticizing the amount of compensation, which more than triples the payment made to Repsol for 51% of its shares and even exceeds the company’s total market value. Another dismissed argument relates to the alleged corrupt origin of the shares. This suspicion led to a complaint filed with the Argentine courts in 2012 that has never been investigated and implicates the powerful Eskenazi family and its ties to the Kirchners, the presidential couple who governed Argentina for 12 years: Néstor Kirchner between 2003 and 2007, and his wife, Cristina Kirchner, for the following eight.

The Eskenazis, owners of businesses in the construction and banking sectors, acquired 15% of YPF in 2008 and an additional 10% in 2011 without making any outlay for these transactions, as it was agreed that they could pay with the dividends they received from the same company.

If the Eskenazis’ entry into YPF had been irregular, the subsequent purchase made by the Burford Fund would be void. The courts have shown no interest in clarifying this point: the complaint has been dormant in Argentine courts for over a decade. Only now, when time is running out, has it begun to awaken: prosecutor Ramiro González has requested preliminary evidence.

“At the very least, there was incompetence throughout the entire process, if not fraud,” warns former Energy Secretary Daniel Montamat, who believes the company should be subject to a thorough investigation by the Argentine justice system. Montamat, who chaired the Argentine oil company in the late 1980s, says he was surprised that Repsol allowed itself to be pressured into selling part of its shares to the Petersen group and was highly critical of the subsequent expropriation, which deepened investor distrust of Argentina.

The legal case in the United States has sparked a bitter political dispute just months before the legislative elections. Milei accused the governor of the province of Buenos Aires, the Peronist Axel Kicillof, of being directly responsible for the adverse ruling because he was the Minister of Economy at the time of the nationalization. Kicillof counterattacked by insinuating that Milei has ties to Burford and warning that YPF cannot be privatized by a foreign judge. The Argentine government has few options. No matter how much pressure the U.S. courts exert, it needs the support of the national Congress to transfer those shares.

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