U.S. Government Supports Argentina in YPF Stake Case

By Jonathan Stempel

NEW YORK (Reuters) – The U.S. government has supported Argentina by urging a federal judge not to compel the nation to relinquish its 51% stake in the oil and gas company YPF, in order to partially satisfy a $16.1 billion court ruling.

In a letter sent Wednesday night to U.S. District Judge Loretta Preska in Manhattan, the Department of Justice argued that U.S. courts do not have the authority to seize foreign sovereign property located outside the United States. The Justice Department stated that imposing such a requirement would violate sovereign immunity and hinder U.S. foreign policy.

Argentina is currently appealing Preska's September 2023 decision that granted the $16.1 billion to Petersen Energia Inversora and Eton Park Capital Management. According to Burford Capital, the litigation funder representing the investors, they are expecting to recoup 35% and 73% of their respective damages.

Burford's legal team did not provide immediate comments, while Robert Giuffra, representing Argentina, also declined to comment.

Under the leadership of libertarian President Javier Milei, Argentina has implemented budget cuts to lower inflation, which has decreased but remains over 200% annually. These measures, however, have exacerbated recession and increased poverty rates above 50%.

Milei's connections to U.S. President-elect Donald Trump may bolster Argentina's $44 billion loan agreement with the International Monetary Fund, which might be reassessed next year.

The $16.1 billion ruling originated from Argentina's 2012 expropriation of the majority stake in YPF owned by Spain's Repsol (OTC:REPYY), without offering to procure shares from minority investors.

Burford contends that Argentina's attempts over the years to structure its assets to prevent enforcement warrant the transfer of the YPF stake, suggesting that a commercial activity exception to the federal Foreign Sovereign Immunities Act could allow such a turnover.

In its letter, the Justice Department stressed:
– Congress, when enacting that law, did not intend to revoke immunity concerning foreign sovereign assets like the YPF shares.
– Abolishing immunity would create an inconsistency, where a foreign entity’s property within the U.S. would have more protection compared to property located in its own country.
– The Justice Department highlighted that out of respect for international legal principles (comity), New York state's turnover statute does not obligate Argentina to surrender the YPF shares, noting that an opposing ruling could jeopardize U.S. property as other nations might reciprocate in their legal systems.

It is presently unclear when Judge Preska will make a ruling.