In June 1999, Repsol achieved control of 98% of the Argentine oil company YPF after an investment of more than 15 billion dollars and put an end to the main privatization process carried out by the liberal government of Argentine President Carlos Menem. A quarter of a century later, and with the return of neoliberal ideology at the helm of the Executive of the third largest Latin American economy, the ghosts of this oil company threaten to become a storm front for the administration of Javier Milei. In September of last year, a ruling by a US court forced Argentina to pay the English law firm Burford Capital some $16.1 billion for the nationalization of the oil company in 2012, something that the newcomers to the Casa Rosada have tried to appeal. unsuccessfully.
Beyond the growing interest for non-payment of the debt, around 5.42% annually, the real threat seems to take shape for Milei with the possible expropriation of Argentine assets abroad. Judge Loretta Preska, in charge of the Southern District Court of Manhattan, opened the door last week to consider that YPF, which continues to operate as a private company listed on the Buenos Aires Stock Exchange, and the Argentine Central Bank could be “alter ego” of the South American country, which would allow assets of both entities to be seized and ensure the collection of part of the debt, at least until a final ruling is reached after the appeal of Argentine lawyers. “In sporting terms, we Argentinians are losing the game 6-0 and we have already scored six rulings against since 2016,” says Sebastián Maril, an expert at the advisory firm Latam Advisors.
The beginning of this legal adventure between Buenos Aires and New York originates in Madrid, thanks to the arrival of the Argentine Eskenazi family to the ownership of YPF with the approval of Repsol. Between 2008 and 2011, this group acquired 25.4% of the energy company’s securities thanks to the financing provided by banks such as Credit Suisse, Goldman Sachs, Santander along with four other entities, as well as 1,500 million euros of debt agreed with Repsol. . The expropriation in 2012 caused the Spanish companies controlled by Eskenazi to go into bankruptcy, so the new administrators designed a plan with the aim of settling their debts with the banks and the Spanish oil company.
The central strategy of the lawyers, approved by commercial court number 3 of Madrid in 2014, consisted of suing Argentina in the United States, considering that the Government, by agreeing to the departure of Repsol, was obliged to launch a takeover bid for the rest of the shareholders, who controlled 49% of the company. In 2015, Burford Capital joined the lawsuit to manage and finance the process, in exchange for 30% of any future economic benefits. That is, if Argentina decided to comply with the ruling of the US courts, just over $4.3 billion would go to settle the liquidation of the companies linked to Eskenazi. At the same time, more than half of this money would go to pay off the debt with Repsol, while the creditor banks kept the YPF shares as partial payment for what was owed.
Consequences for Argentina
Milei is not the first president who has to face the consequences of this lawsuit: since 2015 there have been three administrations of different political colors. For now, the new Executive appears to follow the same legal strategy as its predecessors and is committed to exhausting legal avenues in the United States, with the focus on next year, when the Court of Appeals rules on Argentina’s request. “It’s time for Argentina to finally pay attention and stop kicking the ball. “President Milei has a unique opportunity to differentiate himself from his predecessors,” says Maril, who points out that the Executive must stop seeing these cases only “as a liability.”
In December of last year, Milei announced that the country does not have the resources to face the judicial decision. “That is the reality, but we have the will to pay,” she said in one of her first television interviews after arriving at the Casa Rosada. At that time, he also announced that he was studying issuing a perpetual bond if he had to face the decision of the US courts, at the same time that he would create the “Kicillof tax”, named after the current governor of the province of Buenos Aires, Axel Kicillof, who was economy minister when the energy company was expropriated. The problem is that the market does not believe in this solution: “There is no possibility that Argentina will continue issuing,” highlighted in December a survey of analysts carried out by the agency Bloomberg.
At the political level, any possible resolution leaves the Argentine Government in an uncomfortable situation, especially in its desperate search for foreign investments to revive an increasingly anemic economy and where poverty reaches 57.4% of the population, according to the latest data. from the Argentine Catholic University. At the end of May, the president met with top executives from technology companies, such as OpenAI, Apple and Alphabet, to whom he presented “his vision of the future of Argentina and the importance of a regulatory framework that promotes innovation and investment.” , as reported by the Executive. He would also bring back bitter memories of the previous great Argentine crisis. The 2001 declaration of default of bonds issued in the 1990s triggered a wave of seizures of Argentine assets abroad. The best known case was that of the Navy training ship Freedomembargoed for two months in Ghana at the request of foreign creditors.
In an economic sense, any increase in debt in foreign currency can aggravate an already complex situation. “Depending on the magnitude of the final rulings in international litigation cases against Argentina (including YPF), public debt could initially increase and investor confidence in sovereign debt could decrease,” highlighted the latest review of the International Monetary Fund. (IMF) last February. Although public debt is at sustainable levels, the multilateral organization points out, with an expected primary surplus of 2% for this year, experts highlight the demanding medium-term calendar, with maturities of more than 21 billion dollars before 2029.
Any decision may also affect YPF’s current operations. The ADRs (American Depositary Receipt, or certificates that represent the ownership of non-US shares) listed on Wall Street have doubled in price since the ultra-liberal prevailed over its Peronist rival on November 19. The expectation, as indicated by analysts at the Brazilian bank Bradesco, is that if the “company can set gasoline prices in parity with international prices,” economic indicators would suffer a “strong positive impact.” For now, in January the Government ruled out a total privatization of the energy company, something that excited some investors, although it brought back the fears of the previous process.
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