Trial hearings to define how much Argentina will have to pay Burford Capital in the YPF expropriation case opened on Wednesday. U.S. Judge Loretta Preska heard arguments to establish how much the country should have paid minority shareholders for their shares when the oil and gas company was expropriated back in 2012. Depending on the judge’s final decision, that amount could range between US$4.9 and US$ 16 billion.
Wednesday’s testimonies hinged on two key points: the interest rate and the date that will be used as reference points to calculate the payout.
The hearing was the first of three daily meetings that will take place this week in the U.S. District Court for the Southern District of New York, presided over by Preska. Robert Giuffra, of the Sullivan & Cromwel law firm, delivered the opening statement for Argentina, while Paul Clement, who was U.S. Solicitor General from 2004 to 2008, was in charge of opening remarks for Burford.
The first thing Preska will have to decide is what interest rate will be used to calculate the extent of damages alleged by Burford. The claimants are demanding an interest rate between 6% and 8%, while Argentina is asking that interest be eliminated or if imposed, that it be in accordance with Argentine law. If the judge rules that Argentina should pay interest, the country’s lawyers offered estimates based on judicial decisions in Argentine courts and said that the rate should be, at most, 3.04%.
The second point under discussion, which occupied most of the time of the hearing, is on which date the state should have notified that it was going to make an acquisition of YPF and when it ought to have made the tender offer to the minority shareholders.
According to Burford Capital’s lawyers, the date that should be taken as a reference is April 16, 2012, the day on which the intervention of YPF was published in the Official Bulletin. Argentina’s lawyers argued that the date that should be taken as a reference is May 7, the day on which the expropriation law — approved by Congress four days earlier — was published in the Official Bulletin.
“On April 16 the management of the company was changed and this is not about control of the company, it is about control of the share,” the Argentine lawyers argued.
The date is fundamental because it determines which quarters are taken to estimate the net income and the P/E ratio, two key components of the formula that determines the value to be paid for the shares. There are also two important discrepancies here: whether or not to take into account the last quarter of 2008 (which includes the impact of the international financial crisis on YPF’s balance sheet) and the price-to-earnings ratio, which the plaintiffs estimate at 27 and Argentina places it in a range between 17 and 18.
The difference in calculations has a sizeable impact on the final amount Argentina could pay Buford Capital. If the most aggressive calculation requested by the claimants (setting the date on April 16 and imposing an interest rate of 8%) is taken as a reference, the state should pay around US$16 billion to Burford. If the less aggressive calculation is taken as a reference (setting the date on May 7 and imposing an interest rate of 0%), the amount to be paid would be US$ 4.9 billion.
Argentina’s lawyers questioned that request. “They are asking for three times the US$5 billion that Argentina paid Repsol for the majority shares,” said the country’s defense lawyer. He explained that Health Ministry’s total budget is equivalent to US$1.5 billion or that the budget for drinking water and sewage works is US$ 1.7 billion.
“Argentina is in a very difficult situation right now, it has a high inflation”, the lawyers argued.
The discussion of the date is framed by two articles of the company’s bylaws. Article 7 states that any acquirer must make a Public Acquisition Offer (OPA for its Spanish acronym) to the minority investors and establishes the formula to estimate the amount due for those shares. Article 28 states that the Argentine state must make a tender offer if it takes control of the company.
Burford Capital presented its first witness on Wednesday, constitutional lawyer and Argentine administrative law specialist Alejandro Bianchi. Two other experts in Argentine law, Alejandro Garro and Alfredo Rovira, are also expected to take the stand by the plaintiffs.
For its part, the Argentine Treasury Prosecutor’s Office (which is in charge of the country’s defense) will call Argentine lawyers Rafael Manovil, Alejandro Uslenghi, and Alfonso Santiago.
Judge Preska ruled May 31 against the Argentine state in the trial for the expropriation of YPF. The court considered that the government should have made a tender offer to the minority shareholders in 2012, two Argentine companies at the time (“Petersen Energia Inversora” and “Petersen Energia”) which later sold the trial rights to Burford Capital. Preska rejected the argument from Argentina’s defense that the current claimants should not be admitted because they are not current holders of the shares.
The meeting began punctually at 1:00 p.m. in New York (2:00 p.m. in Argentina). First Burford Capital’s lawyers presented their arguments, then Argentina’s representatives, and after a brief fourth intermission, Judge Preska heard witnesses for the parties. While there is no deadline for a ruling by Judge Preska, a source with knowledge of the situation told the Herald that a ruling on the amount to be paid could come out this year.