U.S. Justice Orders Argentina to Surrender 51% of YPF Shares

Argentina received a severe blow in the New York courts this Monday. Judge Loretta Preska has ordered the South American country to deliver 51% of the shares of the oil company YPF, which was partially nationalized by Cristina Kirchner’s government in 2012 when the controlling shareholder was the Spanish company Repsol. The shares will be used as part of the payment to beneficiaries of a ruling from September 2023, in which Preska condemned Argentina to pay $16.1 billion to shareholders affected by the nationalization process of the oil company. Argentina will not immediately cede the shares because the ruling is still appealable, but it marks a closing door in President Javier Milei’s legal strategy.

“For the reasons stated above, the plaintiffs’ motion is GRANTED,” states Preska’s ruling. “The Republic must transfer its Class D shares of YPF to a global custody account at BNYM [Bank of New York Mellon] in New York within 14 days from the date of this order; and instruct BNYM to initiate a transfer of the Republic’s ownership interest in its Class D shares of YPF to the plaintiffs or their designees within one business day from the date the shares are deposited in the account,” concludes the ruling.

At the time of nationalization in 2012, 57.5% of YPF was held by Repsol, 25.5% by Petersen Energía Inversora and Petersen Energía —two Spanish companies belonging to the Argentine Eskenazy family— and 17% was distributed among minority investors like Eton Capital. In 2023, Preska ordered Argentina to pay $14.385 billion to Petersen Energía and another $1.714 billion to Eton Capital. Also involved is Buford Capital, a fund that specializes in buying litigation rights from bankrupt companies to pursue claims for large sums, a methodology similar to what vulture funds use with debt securities. The fund sued the Argentine state after acquiring the rights from Petersen Energía Inversora and Petersen Energía, which are in creditor proceedings in Spain because they became indebted to purchase their stake in YPF, devalued by the expropriation.

Preska’s ruling from two years ago considered that at the time of the expropriation, Argentina should have offered the same deal to Repsol as it did to other shareholders, as stipulated by YPF’s charter when it involves a transfer of more than 15% of shares. Argentina has consistently argued that the case should be settled in local courts and that the expropriation of YPF complied with all legal regulations, including a payment of $5 billion to Repsol. However, for Judge Preska, “foreign governments cannot simply void exceptions to the FSIA [Foreign Sovereign Immunities Act] by invoking their own law to protect their assets from execution in the United States. If international courtesy could override the FSIA and allow foreign law to control which sovereign assets are subject to execution, each foreign state could evade compliance with judgements in U.S. courts.”

Preska left YPF out of the litigation. This means that it will be the Argentine state, and not the company (which still retains 49% of its shares in private hands), that must pay the compensation. In any case, the government is not in a position to meet the judicial demand. Not only because it lacks the funds, with its international reserves negative and relying on the International Monetary Fund to support its currency. Additionally, the YPF nationalization law prohibits the Executive from transferring expropriated shares without prior authorization from Congress.

The ruling surprised the Casa Rosada. In November 2024, following Donald Trump’s victory and two months before his inauguration, the U.S. Department of Justice requested in writing that Judge Preska reject the compensation demanded by Burford Capital and Eton Capital, winners of the lawsuit against the Argentine oil company. The White House’s argument was that the plaintiffs’ request violates local U.S. laws and opens the possibility of some form of reciprocity by Argentina with U.S. sovereign assets.