Q&A: Is Venezuela on the verge of losing its prized foreign asset, Citgo?
After at least three consortia revised their bids in June and a U.S. Court completed the second round of bidding in an auction of shares of Citgo Petroleum, owned by Venezuela, creditors are hopeful that they will receive payment for some outstanding Venezuelan debt.
The auction of the seventh largest U.S. refiner was organized by a court in response to a case Crystallex, based out of Canada, brought eight years ago against Venezuela. Citgo Holding's parent company, PDV Holding was found liable by the federal court for Venezuela's past expropriations and debts. This allowed over a dozen creditors to seek compensation for nearly $19 billion.
After a series of delays, the second round of bidding was completed in this year. In March, a $3.7 billion bid by Contrarian Funds affiliate Red Tree Investments was chosen as the opening bid. This included a $2 billion payment agreement for holders of defaulted Venezuela bonds. Last month, rival bidders submitted their offers. According to court documents, rival bids were submitted by a group headed by a subsidiary owned by miner Gold Reserve as well as a consortium of private equity firms Black Lion Capital Advisors. Elliott Investment Management affiliate Amber Energy, and trading house Vitol considered bids as well. However, it is unclear whether they made revised offers during "topping" time.
The period covered was from April 28 to June 18.
The court officer who oversees the auction and said last month that new bidders might emerge just before the deadline for submitting offers must recommend the winner of the auction by July 2. A final hearing on the sale process is expected to take place on August 18th. The judge, parties and the court officer overseeing the auction must make a recommendation by July 2.
What could be the possible loss for Venezuela?
Venezuela would lose its largest overseas asset if it fails to retain equity in the refinery and its U.S. parent companies. With a foreign debt of $150 billion, the country has already lost assets in Europe, Asia, and South America to creditors. Leonard Stark, a Delaware judge, has allowed Venezuelan parties to make an offer. Boards supervising refinery would have to get the backing of politicians from both Caracas as well as Washington. This is a challenge, given U.S. sanction on the OPEC country and other strained ties. Prior to the sanctions, Citgo's 807,000-barrel-per-day refining network was a primary processor of Venezuela's heavy sour crudes. Citgo, the Houston-based refiner, has been relying on other crude suppliers since it severed ties with PDVSA in Caracas, Venezuela's state-run oil firm, which is Citgo's ultimate parent. Venezuela's opposition has been working for years to keep Citgo. They have funded legal defenses, and lobbied in Washington. Treasury Department must approve the winner of the auction. Treasury Department has protected Citgo in recent years from creditors.
Citgo, according to opponents of Venezuelan president Nicolas Maduro, could help the nation's economy recover if democracy was restored. Maduro officials rejected U.S. sanction and called the auction a robbery.
Can creditors claim post-auction compensation?
Yes. ConocoPhillips and Gold Reserve have taken legal action to seize Venezuelan assets such as tankers, bank accounts and PDVSA controlled storage facilities. If they are not satisfied with the results of the bidding round, which was won by Elliott's affiliate Amber Energy last year, creditors can file objections. The creditors can also pursue parallel cases in U.S. courtrooms that have so far not made significant progress to enforce bond claims or prove PDVSA's U.S. subsidiary's liability for Venezuelan debts. This is a step necessary to pursue Citgo assets.
Three of the original 18 creditors cleared by the court have withdrawn due to mounting legal fees and uncertain prospects for recovery. Other participants, such as the owner of artifacts belonging to Venezuelan independence hero Simon Bolivar and a collector of Bolivar-related items, failed to meet all requirements set by the court.
All creditors will be compensated
Unlikely. Citgo's valuation in the Delaware case was between $11 and $13 billion. However, it is expected that the auction would yield about $8 billion when factoring in possible side agreements with important creditors like bondholders. Citgo's recent poor performance, which includes a loss that dropped to $305 million from $2 billion by 2023 could also impact its valuation.
This suggests that over half of the registered creditors who collectively claim $18,9 billion may not receive any distributions.
(source: Reuters)
