(CN) – Spanish oil giant Repsol YPF and other investors claim in a federal class action that Argentina nationalized their stake in the formerly state-owned energy company YPF and broke its compensation promises.
“In order to induce U.S. and other investors to purchase shares in the formerly state-owned enterprise, Argentina committed to shareholders that it would not retake control of the company without offering all investors a compensated exit,” shareholders claim in the U.S. District Court for the Southern District of New York. “Indeed, the new provisions prohibited Argentina from ever again exercising control over YPF, even if it had sufficient shares to do so, unless it launched a tender offer for all class D shares – the shares it was taking public – at a price determined according to those provisions. These promises have been repeated in numerous prospectuses and periodic reports filed with the SEC in the years since the IPO [initial public offering], each of which Argentina approved and ratified in its commercial capacities as a shareholder of YPF and through its designated board representative.”
Lead plaintiffs are oil and gas company Repsol YPF, which held a majority stake in Argentina’s YPF, and Texas-based money manager Texas Yale Capital.
They claim that Argentina made more than $1.1 billion through an SEC-registered initial public offering of American Depositary Receipts (ADRs) listed on the New York Stock Exchange, and then reneged on its promise to make shareholders a tender offer when seizing control of the company.
“This class action arises from an effort by the Republic of Argentina (‘Argentina’) to walk away from the contractual obligations that it undertook when it chose to enter the United States to raise capital through the initial public offering of its formerly state-owned oil company, YPF, S.A. (‘YPF’ or the ‘company’),” the complaint states. “To induce investors to purchase shares in that former state enterprise, Argentina undertook the contractual obligation to launch a tender offer to all holders of class D shares of YPF if it should ever in the future seek to retake control of the company. But now, culminating a wide-ranging offensive against YPF that has nearly halved the stock market value of the company in a matter of months, Argentina has seized control of YPF’s operations, appointed an ‘intervenor’ conferred with all the powers of the company’s board and president, and enacted legislation seizing by fiat a majority of YPF’s shares, all without launching any tender offer.”
YPF was an exclusively state-owned, monopolist oil and gas company until the early 1990s, when Argentina privatized it. Argentina took the company public in 1993, but stayed on as a shareholder and continued to participate in its management, according to the complaint.
“In the context of this privatization and with an eye to an eventual public offering of YPF, Argentina in its commercial capacity as sole and controlling shareholder adopted certain provisions in YPF’s by-laws designed to induce investors to purchase the company’s shares by committing to investors that they would be provided a compensated exit in the event Argentina were to have a change of heart and choose to retake control of YPF,” according to the complaint.
Argentina allegedly adopted the by-laws to assuage shareholders’ fears that they may end up holding equity in a state-controlled company, which would operate not for their benefit, but as an arm of the Argentine government.
“Underscoring Argentina’s self-imposed prohibition on a reacquisition of control without a tender offer, Section 28 expressly prohibits Argentina from exercising control over the company – even if it had sufficient shares to do so – unless and until a tender offer has been made,” the complaint states. “Absent a tender offer, any shares of stock or securities acquired by Argentina in violation of its contractual tender offer obligation are automatically stripped of any right to vote, to collect dividends or other distributions, or even to be counted towards a quorum of shareholders.”
But Argentina failed to honor its tender offer obligation, the shareholders say.
Argentine lawmakers announced on April 16 their intention to expropriate Repsol’s YPF shares, which represented 51 percent of the class D shares, without compensation, arguing that the Spanish investor had allowed oil production and exploration to decline.
Argentine President Cristina Fernandez de Kirchner signed the expropriation into law earlier this month, according to the complaint.
Earlier this year, Argentina “launched an aggressive and wide-ranging offensive against YPF and its shareholders,” which cut the price of YPF shares nearly in half, the shareholders claim.
YPF shares have fallen 50 percent in the past five months, and another 26 percent after the New York Stock Exchange suspended trading of YPF’s ADRs because of the expropriation legislation.
Repsol and Texas Yale seek class certification and compensatory damages for breach of contract and bad faith. They want Argentina to launch a tender offer.
Michael Carroll with Davis Polk & Wardwell in Manhattan represents the class.