For Cristina Fernández de Kirchner, the seizure of Argentine oil major YPF in 2012 was not just necessary to “safeguard the hydrocarbon sovereignty” of her country. In a TV broadcast announcing the move, the then-president claimed it was the fulfilment of her ruling family’s “life-long dream”.
Eleven years on, that dream is threatening to turn into a nightmare, after a New York court awarded a record $16bn in damages and interest to two minority YPF shareholders. The claims were financed by litigation funding powerhouse Burford Capital in exchange for a percentage of the award.
Shares in US- and UK-listed Burford shot up by almost a fifth following last week’s ruling, even as it cautioned investors that the cases it is involved with “often resolve for considerably less than the amount of any judgment rendered by the courts”, and that a protracted legal battle could follow. Argentina confirmed soon after that it intended to appeal.
The verdict, coupled with Argentina’s defiance in the face of economic woe, have invited comparisons with US hedge fund Elliott Management’s 15-year battle to force the government to pay out on its defaulted debt. That bruising fight, which took place in the same New York court where Burford clinched its victory, finally ended in a $2.4bn settlement in 2016.
Jay Newman, who spearheaded Elliott’s campaign at the time, said “this claim is so large that, even if it wanted to, Argentina couldn’t pay”.
The country owes almost $422bn, mostly to local bondholders and the IMF, about $126bn of which comes due by the end of 2024, according to Salvador Vitelli, head of research at Argentina’s Romano Group consultancy.
Newman added he expects Burford, whose share of the $16bn is likely about $6bn, to ultimately take a significant haircut. Burford is “creative and tenacious”, he said “but, in the near term, they won’t get even half of this. Argentina is in dire straits — that’s just not happening”.
By contrast, Julian Roberts, an analyst at Jefferies, said he believed investors “are probably right to think that [Burford] can get a majority of the settlement recovered”, although it might take “another three or four years” to reach a deal. Burford could “certainly use the potential to keep Argentina out of borrowing markets as a lever to bring them to the table”, he added.
Buenos Aires governor Axel Kicillof — a member of Argentina’s ruling Peronist faction who oversaw the YPF expropriation, and whose comments about it being “stupid” to comply with YPF’s bylaws were quoted in the judgment — has struck a defiant tone in the days since the decision.
The verdict, he said, would “surely end up in the [US] Supreme Court, because this violation of Argentine sovereignty is equally or even more serious than that last vulture attack”, referring to Elliott’s campaign.
Burford said it would not publicly disclose “its enforcement or settlement strategies”. But a person with knowledge of the matter said the company, which has a team of 30 recovery specialists, was confident that it would not suffer as bruising or as lengthy a battle as Elliott, and pointed to the fact that unlike with debt holders, “Argentina has paid all or virtually all of the judgments and arbitration awards against it over time.”
The company, whose current portfolio represents a potential value at least three times that of the YPF claim, can also afford a lengthy battle, having already recouped its original investment into YPF litigation. Burford has spent roughly $60mn to date on the lawsuits, but made more than $235mn selling roughly 30 per cent of one of the claims to third parties.
An attempt to smear the company in a similar manner to the way Elliott was attacked for “trying to extort” Latin America would not deter Burford, co-founder Christopher Bogart, who previously said he feared travelling to Argentina, told the Financial Times. Argentina’s criticism of the company’s role in the case was rebuked by Judge Loretta Preska, who wrote that the “Republic owes no more or less because of Burford Capital’s involvement”.
“Somehow these claims have to be brought or the creditors in those estates will never get a dime,” Bogart said. “It’s entirely appropriate for clearly illegal conduct to be brought to account . . . Argentina admits that they got an asset that they wanted for a good price, and now all they’re doing is paying for it.”
Lawyers for Argentina said the judgment was “legally flawed” and that the minority shareholders’ shares in YPF were “never expropriated”.
“A US court should never have agreed to decide Argentine corporate law claims under governing Argentine law, which belong in an Argentine court,” they added. A US appeals court concluded in 2019 that the case belonged in New York since YPF was listed on the city’s stock exchange.
Opposition politicians in Argentina, which is preparing for a hotly contested presidential election in October, mostly directed their criticism at the Peronist government. Centre-right opposition coalition Juntos por el Cambio (JxC) held up the judgment as evidence of the Peronists’ economic mismanagement, with prominent members calling for consequences for the officials who oversaw the expropriation, including Fernández de Kirchner, now vice-president.
Javier Milei, the anti-establishment libertarian frontrunner who has advocated eventually reprivatising YPF, said the case “shows how dearly the thieving, parasitic, useless political class costs us”. Darío Epstein, an economic adviser to Milei, said he believed “payment will not become an issue for several years”.
Argentina will have many delaying tactics at its disposal. The country’s counsel will probably ask that enforcement of the judgment be paused while it appeals against it, without needing to post a bond. Burford could seek a ruling under a section of the Foreign Sovereign Immunity Act allowing it to eventually impound Argentine assets, but as Newman found during Elliott’s protracted campaign, “if a sovereign doesn’t want to pay, they have lots of tools and lots of time”.
During its battle with Elliott, Argentina “pretty much judgment-proofed themselves”, Newman added, by keeping its assets out of US reach.
The hedge fund’s lawyers found it almost impossible to pin down any sizeable Argentine holdings, with courts around the world rejecting claims on various sites and deposits. An audacious seizure of an Argentine Navy vessel in a port in Ghana, while an embarrassment to Buenos Aires, was ruled unlawful by the UN International Tribunal for the Law of the Sea. Attempts to seize Argentina’s dollars at the Federal Reserve’s New York branch also failed.
Facundo Martínez, director of Argentine research institute IERAL and adviser to JxC’s would-be economy minister Carlos Melconian, said the most important factor in determining whether Burford is paid will be the next government “implementing a serious plan” to stabilise the economy.
Reserves are currently some $4.5bn in the red, per private economists, and while a forecast bumper agricultural harvest next year should bring some relief, it will take “many years” to build them back to a healthy level, Martinez said. “We don’t lack willingness to pay, what we lack is capacity to pay. And an IOU from an insolvent debtor isn’t worth anything.”