2024-08-10 12:00:27
Armed with a record $16 billion U.S. court judgment, representatives of former shareholders of Argentina’s state oil company YPF have embarked on a long slog to get the cash-strapped country to pay for the expropriation of their shares.
Previously, another case led by hedge fund Elliott sought to extract funds from Buenos Aires and took about 15 years, with the most notable incident being the seizure of an Argentine ship in international waters, which was eventually settled in 2016 during the administration of then-President Mauricio Macri.
The enforcement battle in the case, which was largely financed by litigation finance giant Burford Capital, has seen acrimonious arguments between the two sides in litigation documents, with the plaintiffs accusing Argentina of “blatantly gaming the process” in an attempt to thwart debt collection efforts.
Argentina’s current president, libertarian Javier Milley, has an ideology that is diametrically opposed to the leftist government of Cristina Fernández de Kirchner, which oversaw Argentina’s standoff with Elliott and expropriated YPF, the company at the heart of the case, in 2012. Milley has said he wants to reprivatize YPF and other state-owned companies and offered to pay the judgment if Argentina’s appeal fails.
But court documents show that the dispute between Argentina and its former investors is as intense as ever. They also hint at more drastic action that could be on the horizon, with plaintiffs seeking permission to examine Argentina’s vast array of state assets, from its flagship airline to its main consumer bank.
The plaintiffs’ lawyers claim that the ostensibly independent companies are in fact filled with unqualified political appointees and are “alter egos of the republic” — a legal term meaning they are not only owned but controlled by the Argentine government, making them indistinguishable from it. In theory, such a designation would pave the way for seizure by Argentina’s creditor agency.
Argentina’s government is appealing last year’s verdict, and people familiar with the matter said they were confident they could win a reprieve from a higher court, saying the plaintiffs were engaged in a sting operation aimed at humiliating the country. In any case, they added, there were no significant assets within U.S. jurisdiction.
In court filings, the country’s lawyers denied the entities involved were “alter egos” and said previous U.S. court rulings supported their contention that they were operationally independent of the state.
The plaintiffs asked the court for permission to review the following state-owned assets to see how closely they are tied to the current and previous governments.
YP
After the expropriation that triggered the lawsuit, Argentina now owns 51% of the energy company YPF, which is held by the country and some provinces. The remaining 49% is privately held. The group is listed on the Buenos Aires and New York stock exchanges.
The plaintiffs argued that previous governments had used the company to provide jobs to “political crooks” and set local fuel prices, suggesting it was actually an arm of the government. They also separately asked the court to order Argentina to transfer the country’s stake in YPF to creditors.
The company, which has a market value of $10.7 billion, owns valuable oil and gas fields in Argentina, including the Vaca Muerta shale formation in Patagonia.
But Sebastián Maril, director of consultancy Latam Advisors, said the YPF assets most accessible to the plaintiffs were its corporate bonds governed by New York law, noting that some of the bonds were secured by U.S. bank deposits generated by YPF’s oil exports.
If YPF is seen as the state’s alter ego, bond prices “will likely plummet” regardless of whether plaintiffs succeed in seizing the bonds, he added. “Judgment creditors hope that risk will force Argentina to negotiate.”
People close to Argentina believe the assets will not fall into the hands of creditors and said YPF’s shares in the country will “definitely not” be seized. They added that no settlement talks would be considered during the appeal.
Central Bank of Argentina
The plaintiffs argue that the central bank is “being used as a tool of the state.” They say the fact that Milley has repeatedly promised to shut down the monetary authority shows that the government ultimately has full control over the organization. “He wrote this in his most recent book,” attorney Randy Mastro argued at a hearing in May, an apparent reference to Milley’s 2023 book on a plan to fight Argentina’s chronic inflation.
Argentina responded that control over the central bank “is not so extensive as to reach the level of control over day-to-day operations.”
Legal experts say a country’s central bank reserves — of which cash-strapped Argentina currently has very little — enjoy strong immunity from seizure in most jurisdictions, including the United States.
However, a recent decision by the Millais government has made it difficult to determine where some of Argentina’s central bank reserves are stored and what legal protections they have from being seized. Last month, Economy Minister Luis Caputo said the central bank had moved some of its $4.7 billion worth of gold to an undisclosed location overseas.
While Caputo said the move was aimed at “getting a return”, opposition politicians claimed the gold could be used as collateral to repay loans required to foreign bondholders next year, raising the risk of it being confiscated. Former Economy Minister Martín Guzman described the move as “pawning your grandmother’s jewels”.
People close to Argentina said a U.S. court had ruled that central bank reserves were untouchable.
Aerolineas Argentinas
Aerolíneas Argentinas has become a political focal point in Argentina under the leadership of Mire, who earlier this year unsuccessfully tried to win congressional approval to privatize the often-loss-making company.
The airline controls 60% of Argentina’s domestic market and operates some international flights with a fleet of 84 aircraft, most of which are leased.
In a motion filed with the court, lawyers for the plaintiffs in the YPF case claimed that “the Republic has staffed the airline with political appointees who have been criticized for their lack of aviation experience and poor management” and quoted former President Macri’s description of it as a “job factory” for left-wing political activists.
Rodrigo Borrás, secretary of APA, the ground staff union that represents many Aerolíneas Argentinas employees, called the arguments “not serious.”
“This is not the first time a vulture fund has tried to infringe on Argentina’s interests in this way,” he said, referring to Elliott’s failed attempt to seize an Argentine navy ship anchored in a Ghanaian port in 2012. “This is not going to work.”
Banking, Energy and Telecommunications
Arsat, which provides mobile and internet infrastructure across Argentina, and Enarsa, which focuses on energy imports and distribution and infrastructure, are among the state-owned telecom companies. Analysts said it was unclear what assets the two companies might hold overseas.
The state-owned Banco Nacional de Argentinos is Argentina’s largest retail bank, with branches in places including New York and Miami, where the plaintiffs hope to find information about accounts held by the Argentine government for use in foreign trade transactions.
All three companies are also targets for Milei’s privatization.
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