By Jonathan Stempel
NEW YORK (Reuters) -A U.S. appeals court will on Wednesday consider whether Argentina must pay investors $16.1 billion after seizing control of state-owned oil company YPF more than a decade ago.
The 2nd U.S. Circuit Court of Appeals in Manhattan will review U.S. District Judge Loretta Preska’s September 2023 award to two minority shareholders of YPF.
Burford Capital has funded much of the litigation and could receive billions of dollars if the investors prevail. Argentina would likely appeal a loss to the U.S. Supreme Court.
The outcome is important to Argentina and its President Javier Milei, whose party won a decisive victory in Sunday’s midterm legislative elections.
Argentina had warned a big judgment could cripple its economy, which has long been overburdened by debt and triple-digit inflation.
Milei, a free-market libertarian, has since becoming president in December 2023 slashed public spending and jobs, while reducing monthly inflation to 2.1% and giving Argentina its first budget surplus in 14 years.
U.S. President Donald Trump has offered Milei a potential $40 billion bailout, including a $20 billion currency swap and $20 billion debt investment facility.
YPF SHAREHOLDERS CHALLENGED 2012 EXPROPRIATION
The appeal concerns Argentina’s 2012 decision to expropriate 51% of YPF’s shares from Spain’s Repsol for about $5 billion, without making a tender offer to minority shareholders Petersen Energia Inversora and Eton Park Capital Management.
Argentine President Cristina Fernandez de Kirchner at the time said YPF, which had been privatized in 1993, should be re-nationalized because it failed to produce enough oil and natural gas to keep up with local demand.
Petersen and Eton Park, respectively YPF’s second- and third-largest investors, claimed that Argentina’s actions caused them billions of dollars in damages.
Preska found that Argentina breached its obligations, and ordered that it pay $14.39 billion to Petersen and $1.71 billion to Eton Park. Those sums reflected $8.43 billion of damages, plus $7.67 billion of prejudgment interest at an 8% rate.
In its appeal, Argentina said the case didn’t belong in a U.S. court, that it did not waive its sovereign immunity and that the damages were grossly inflated, with $16.1 billion representing 45% of its overall budget for 2024.
Argentina also said Preska misapplied Argentine law, and that principles of international comity, or the respect that countries afford each other by limiting how far their laws reach, justified a dismissal.
Petersen and Eton Park countered that Argentina’s flagrant breach of contract could be addressed in the United States, and accused Argentina of years of delay in avoiding the consequences.
ARGENTINA SEPARATELY APPEALING YPF TURNOVER ORDER
The appeals court typically takes at least a few months to rule in complex cases.
Argentina is also appealing Preska’s June 30 order that it turn over the YPF shares to partially satisfy the $16.1 billion judgment.
In August, the 2nd Circuit put that order on hold to allow Argentina to appeal.
The U.S. government has not taken a position in Wednesday’s appeal.
It has opposed requiring Argentina to turn over its YPF shares, saying it could interfere with foreign policy and expose the United States to similar treatment in other countries’ courts.
The cases are Petersen Energia Inversora SAU et al v Argentina, 2nd U.S. Circuit Court of Appeals, Nos. 23-7376, 23-7463 and 23-7614.
(Reporting by Jonathan Stempel in New York; Editing by Lincoln Feast.)
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