The third and final hearing of the trial to define how much Argentina will pay Burford Capital in the YPF expropriation case took place Friday in New York in what Argentina’s attorney Robert Giuffra called a “packed courtroom” in his closing argument.
The discussion focused on establishing how much the country should have paid minority shareholders when the oil and gas company was expropriated back in 2012. Depending on Judge Loretta Preska’s final decision, that amount could range between US$4.9 — the minimal amount acknowledged by Argentina’s lawyers during the hearings — and US$ 16 billion.
Over the three hearings, testimonies hinged on two key elements: what interest rate and what date would be used as reference points to calculate the payout.
The interest rate
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 plaintiffs are asking for an interest rate between 6% and 8%, given that they consider the situation a “forced loan.”
“The correct answer is 8%”, said attorney Paul Clement, in charge of closing statements for Burford.
Argentina is asking that interest be eliminated or, if imposed, that it be defined according to 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 was the date in which the state should have notified it was going to make an acquisition of YPF, and when it ought to have made the tender offer to minority shareholders.
According to Burford Capital’s lawyers, the reference date should be April 16, 2012, the day that the YPF takeover was published in the Official Bulletin. Argentina’s lawyers argued that the date that should be used is May 7, the day on which the expropriation law — approved by Congress four days earlier — was published in the Official Bulletin. During the second hearing, Rafael Manóvil — a law expert arguing on Argentina’s behalf — stressed that the intervention date should not be taken into account, as its purpose was to “protect its assets from the administration of the company,” and that the interventor did not have “power over shares” nor was he YPF’s director.
The date is crucial because it determines which quarters are taken to estimate the net income and the price-to-earnings (P/E) ratio, two key components of the formula that determines the value to be paid for the shares. There were also two important discrepancies: 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 what P/E ratio would be used, given that the plaintiffs estimate it at 27.1 and Argentina places it in a range between 17 and 18.
The difference in calculations will have a sizable impact on the final amount Argentina ends up paying Burford Capital. If the more aggressive calculation requested by the plaintiffs (with April 16 as the reference date and an 8% interest rate) is upheld, the state would pay around US$16 billion. If Argentina’s calculation is taken as a reference (setting May 7 as the date and imposing a 0% interest rate), the country would have to pay US$ 4.9 billion.
Burford’s closing argument
Burford attorney Paul Clement began highlighting one of the three points he emphasized in his closing remarks: the date in which Argentina should have informed minority shareholders it was going to make a tender offer.
“The triggering date is April 16, which is when the state took control through an intervention decree. It is not about share control, it is about the direct or indirect control of the company”, said Clement.
The lawyer reviewed YPF’s bylaws and explained that minority investor protection clauses included in the 1990s impose a high penalty in the event a company is nationalized. Regarding the interest rate, Clement said that it should range between 6% and 8% because they considered the situation a “forced loan.”
The P/E ratio was the third aspect Clement focused on. He said that calculations need to be done with information that was available in 2012, which means using a P/E ratio of 27.1, as their expert witness testified. Argentina, on the other hand, argued that the number should be calculated with the information currently available on Bloomberg.
“The numbers are large for a reason”, said Clement. “They violated the bylaws in real time knowing that they might be paying something like US$19 bn”.
“They knew this was a bear trap”.
Argentina’s closing argument
Attorney Robert Giuffra, of the Sullivan & Cromwell law firm, said the case was “closely followed by the Argentine press” and, depending on Judge Loretta Preska’s decision, Argentina will have to pay between US$4.9 and US$16 billion.
In his closing statement, Giufra charged against the plaintiffs’ expert witnesses, saying that one of them, Alejandro Garro, “has claimed to be a member of the Argentine bar for 50 years.”
“That’s a pretty impressive story,” he said. “It turns out that he stopped being a member of the Argentine bar in 1977 — when I was a teenager”.
He added that another expert, Alfredo Rovira, should be subject to cross-examination due to accusations of plagiarism made against him.
Giufra also said that no experts from the plaintiffs’ side testified on prejudgment interest — the amount of a legal award from the time of the injury or damage to the time the judgment is entered by the court — and that the claimants were “unwilling to have an expert come and testify.”
“The other side cites Argentine legal opinions that they throw at you, your Honor, but they were unwilling to have an Argentine law professor or expert come and talk about prejudgment interest.”
“There are two pieces of Argentine law that matter in this case — intervention decrees and expropriation law. Those had different legal consequences. The intervention decree gave an interventor the ability for 30 days to intervene in the management.”
Giufra stressed that the expropriation law, which requires the approval of both chambers of Congress, was debated in the Argentine Congress between April 16 and May 2. If it hadn’t passed, “that would have been the end of it,” Giuffra said.
“The event that triggered the tender offer obligation was its acquisition and control of the shorts, not its intervention,” he added. “The intervention decree was a temporary measure that provided for a temporary intervention for only 30 days.”
Regarding the amount that Argentina will have to pay, Giuffra said that “the lowest number we have is US$4.9 billion, which is huge.”
“It’s a country with a share of economic troubles and a severe drought. They have low reserves available”, said Giuffrra. “A massive payment here is only going to exacerbate the country’s problems. And one can blame politicians or whatever, but that’s just the reality.”
What analysts say
Sebastián Maril is an Argentine expert who has been following the case in detail for eight years. He told the Herald that Preska will likely determine her ruling in the next few months. “It’s not going to happen in July or August, but it might come in September”.
“In my opinion, Argentina’s position is weaker in terms of the date on which the country took control of Repsol’s shares, and that issue will be won by the plaintiffs. I think Judge Preska is going to say that April 16 is the correct date. On the other hand, I am not so sure that the plaintiffs will be lucky enough to convince the judge that the interest rate is 8%; most likely the interest rate will be lower, as Argentina wants”, Maril said.
“Preska will take her time — there are a lot of details, evidence, and testimonies — before making a ruling. This is a slow process because she is very careful with what she writes”, Marill told the Herald.