The headquarters of Argentina's state energy company YPF is seen in Buenos Aires, Argentina February 10, 2021. Picture taken February 10, 2021. REUTERS/Matias Baglietto

By Jonathan Stempel

NEW YORK (Reuters) -A U.S. appeals court on Wednesday signaled a willingness to set aside a $16.1 billion judgment against Argentina for seizing control of state-owned oil company YPF in 2012, because the case didn't belong in the United States.

Two judges on a three-judge panel of the 2nd U.S. Circuit Court of Appeals in Manhattan expressed sympathy for Argentina's argument that the case should have been heard at home, where local judges could interpret local law.

Argentina is seeking to overturn U.S. District Judge Loretta Preska's September 2023 award to two former shareholders of YPF, Petersen Energia Inversora and Eton Park Capital Management, for alleged losses stemming from YPF's nationalization.

"It does have a feel like this should have been in Argentina," Circuit Judge Denny Chin told Paul Clement, a lawyer for Petersen.

"Here we are trying to figure out what these Argentina cases, Argentine statutes are saying," Chin added. "The judgment is against the republic for actions taken as a republic. If you were to flip it and put the United States in their shoes in Argentina, how would we be feeling about letting an Argentine court decide issues against the United States under American law?"

If the $16.1 billion award were set aside--which a lawyer for Argentina said has grown to $18 billion with interest--it would be a defeat for UK-based Burford Capital, which is funding the litigation and would receive much of the award.

Burford's share price fell as much as 15% in New York after Chin and Circuit Judge Jose Cabranes questioned whether the lawsuit belonged elsewhere. Circuit Judge Beth Robinson also sat on the panel.

ARGENTINA, MILEI FEAR BIG AWARD COULD HURT ECONOMY

Argentina and its President Javier Milei, whose party won a decisive victory in Sunday's midterm legislative elections, believe a big award could cripple the country's economy, which has long been overburdened by debt and triple-digit inflation.

Milei, a free-market libertarian, has been slashing public spending and jobs, reducing monthly inflation and has given Argentina its first budget surplus in 14 years.

He also has support from U.S. President Donald Trump, who offered a potential $40 billion bailout, including a $20 billion currency swap and $20 billion credit line.

The appeal concerns Argentina's 2012 decision to expropriate 51% of YPF's shares from Spain's Repsol for about $5 billion without making a tender offer to Petersen and Eton Park, respectively YPF's second- and third-largest investors.

Argentine President Cristina Fernandez de Kirchner at the time said YPF, which had been privatized in 1993, should be re-nationalized because it failed to produce enough oil and natural gas to keep up with local demand.

Preska found that Argentina breached its obligations, and ordered that it pay $14.39 billion to Petersen and $1.71 billion to Eton Park. Those sums reflected $8.43 billion of damages, plus $7.67 billion of prejudgment interest at an 8% rate.

ARGENTINA SEPARATELY APPEALING YPF TURNOVER ORDER

Robert Giuffra, a lawyer for Argentina, told the appeals court the judgment was "literally life-threatening to the country," and said Preska "made up an unprecedented remedy, not authorized by Argentine law."

He also said the damages were inflated, representing 45% of Argentina's overall budget for 2024, saying it would be like ordering the United States to pay more than $2 trillion based on an equivalent percentage of federal spending.

Clement countered that "given Argentina's checkered economic past and its penchant for nationalism," YPF investors needed protections in case the country pursued a re-nationalization, and which they might not find in Argentine courts.

"When you're seeking significant compensation from a foreign sovereign," Clement said, "there is some reason to think that you're not going to get as fair a shake than if you sue here."

The appeals court did not say when it will rule. It typically takes at least a few months to rule in complex cases.

Argentina is also appealing Preska's June 30 order that it turn over the YPF shares to partially satisfy the $16.1 billion judgment. In August, the 2nd Circuit put that order on hold to allow Argentina to appeal.

The U.S. government took no position in Wednesday's appeal. It opposed requiring Argentina to turn over its YPF shares, saying it could interfere with foreign policy and expose the United States to similar treatment in other countries' courts.

The cases are Petersen Energia Inversora SAU et al v Argentina, 2nd U.S. Circuit Court of Appeals, Nos. 23-7376, 23-7463 and 23-7614.

(Reporting by Jonathan Stempel in New York; Editing by Lincoln Feast.)