Judge Clears Way for Final Bids on Citgo in Setback to PDVSA

Jef Feeley
·3 min read

(Bloomberg) -- A judge cleared the way for final offers for Citgo Petroleum Corp.’s US parent, denying objections from Venezuela’s state-owned oil company to the bidding process for the oil refiner’s court-ordered sale.

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Judge Leonard Stark concluded at a hearing in Wilmington, Delaware, on Friday that a special master’s proposed instructions for taking final bids next month was “not inconsistent” with the approved sale process. The instructions didn’t improperly favor investors holding a defaulted 2020 bond backed by a controlling stake in PDV Holding, which owns the US refiner, the judge found.

Lawyers for Petroleos de Venezuela SA, or PDVSA, argue that a separate court fight in New York hasn’t determined the extent of the bondholders’ claims. The master’s process assumes those holders will get some of the PDV Holding sale proceeds, which could discourage or interfere with the bidding process, they say.

Attorneys for Special Master Robert Pincus and some of Venezuela’s other creditors, who had persuaded Stark to put Citgo up for sale to compensate for the country’s asset seizures, contended at the hearing that PDVSA’s objections were aimed at delaying the auction.

Auction Goes Ahead

In the end, Stark concluded there’s no evidence that Pincus’ inclusion of the bondholders’ claims in communications about the sale process will “chill” any bids.

“I’m not going to delay the auction,” Stark told the dozens of lawyers gathered before him in federal court.

The Citgo sale will close a chapter on the nationalization of the assets, which hit a host of big companies. Crystallex International Corp., a Canadian miner whose rights to the Las Cristinas gold field were seized by former Venezuelan President Hugo Chavez, is first in line for a hefty slice of the auction’s proceeds. Among the other companies are Siemens AG, ConocoPhillips and Exxon Mobil Corp.

A World Bank arbitration panel in 2016 found Venezuela owed Crystallex $1.4 billion, of which it is still seeking to recover about $1 billion. A pair of Exxon’s oil projects were expropriated in 2007, and the company is seeking to have $984 million in claims recognized.

Horacio Medina, a member of the Venezuelan political opposition and the head of the ad hoc board that represents PDVSA in US courts, didn’t immediately return a message seeking comment on Stark’s ruling.

Bond Fight

The PDVSA bonds were issued in 2016 by the government of Nicolas Maduro, who faces US sanctions intended to force him to hold free and fair elections. Opposition head Juan Guaido, who in 2019 was recognized by the US as Venezuela’s legitimate leader, has withheld bond payments, saying the bonds were invalid because they were sold without legislative approval.

PDVSA itself remains in the hands of the Maduro government but is represented by the ad hoc board, appointed by the Guaido-led opposition, which has been fighting to protect Citgo from being seized by creditors. The board has offered to negotiate with key creditors to stave off the sale, but no agreements have been reached.

Meanwhile, Maduro blames the opposition for allowing what he calls the “theft” of PDVSA’s most important overseas asset.

The second and final round of bids for PDV Holding’s shares is scheduled for June 11, with the winner set to be announced the following month. Almost 20 creditors have won the legal right to some of the sale’s proceeds.

The case is Crystallex International Corp. v. Bolivarian Republic of Venezuela, 17-mc-00151, US District Court, District of Delaware (Wilmington).

--With assistance from Nicolle Yapur and Fabiola Zerpa.

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