Venezuela edges closer to losing CITGO as corporations submit binding offers

A total of 18 creditors are looking to collect a USD 21.3 billion combined debt, with a final sale decision expected in mid-July.

June 19, 2024 by Ricardo Vaz
Corporations and consortia submitted binding offers for CITGO, estimated at $11-13 billion. (Photo: CITGO)

The second and final round of bidding in a court-mandated auction of Venezuela’s US-based oil subsidiary CITGO has concluded.

Several corporations submitted binding offers by a June 11 deadline as part of a process organized by a Delaware District Court to satisfy a number of claims against the Caribbean nation totaling US USD 21.3 billion.

In October 2022, Judge Leonard P. Stark set in motion the sale of shares belonging to PDV Holding (PDVH), CITGO’s parent company. The process was brought forward by Canadian miner Crystallex.

The auction procedure will pay 18 creditors, which are looking to collect on international arbitration awards on a “first come, first serve basis,” based on when the court approved their writs. Crystallex (USD 1.0 billion), Tidewater (USD 80 million), ConocoPhillips (USD 1.3 billion) and O-I Glass (USD 700 million) are at the top of the list.

According to Reuters, at least five groups of investors put forward proposals. Sources disclosed that Wall Street banks JPMorgan, Morgan Stanley, and investment groups Rothschild & Co and Elliott Investment Management, secured financing for auction bids.

Canadian mining corporation Gold Reserve presented a credit offer, using its USD 1 billion debt as part of the offer. The bid was alongside Utah-based conglomerate FJ Management. The Delaware court has allowed companies or consortia to present credit plus cash proposals.

Rusoro Mining, another Canadian company presented a non-binding offer in the previous round in January but did not disclose whether it submitted a second-round bid. It is owed USD 1.6 billion.

Other rumored interested parties include hedge fund Elliott Investment and Centerview Partners. The latter has reportedly tried to join forces with ConocoPhillips. The US oil giant is looking to enforce two arbitration awards worth USD 1.3 and USD 10.2 billion, respectively. It did not state publicly whether it had submitted a bid.

Reuters likewise reported that bidders will be allowed to up their offers. Companies can trump the winning bid by offering at least USD 100 million more, while the top bidder can “top off” its offer if necessary to recoup a credit claim in its entirety.

Court-appointed “Special Master” Robert B. Pincus and investment bank Evercore, hired as a consultant, will review the auction proposals. Barring schedule changes, Judge Stark will issue his final decision on July 15. The winning bidder will require US authorization to execute the sale, but the Treasury Department has promised a “favorable licensing policy.”

The present CITGO board might lobby the court to open a third round of bidding if offers remain far from the company’s USD 11-13 billion valuation. The highest amount put forward in the first round was just USD 7.3 billion.

CITGO’s board was appointed by the since-defunct Venezuelan self-proclaimed “interim government” headed by Juan Guaidó with US support. It does not respond to any of Venezuela’s elected authorities.

The US-backed hardline opposition has exercised control over Venezuela’s most prized foreign asset since 2019 and has drawn criticism for a string of actions that have precipitated a likely change of ownership for Venezuelan state-owned CITGO.

The Guaidó-led sector failed to show up in court and allowed ConocoPhillips to get a green light to enforce its biggest award. Additionally, both Stark and the Third Circuit Court of Appeals approved the so-called “alter ego” argument, allowing more corporations to tag their claims to the ongoing auction, on the basis of actions and statements by the “interim government.”

In recent weeks, Venezuelan opposition operators and allied US politicians have called on the Biden administration to intervene in the court-mandated CITGO sale to shield anti-government factions from a political cost in the Caribbean nation’s July 28 presidential elections.

On Monday, the Maduro government issued a statement rejecting the “plundering” of CITGO as “another episode of the US’ multi-pronged aggression against Venezuela.” Caracas vowed not to recognize the sale and to take necessary action against actors involved in the process.

Apart from the Delaware procedure, CITGO is also liable to owners of the defaulted PDVSA 2020 bond after 50.1% of the company’s shares were pledged as collateral. The US Treasury has stepped in to stop bondholders from executing the collateral, with the protection due to expire if the oil subsidiary changes ownership.

A subsidiary of Venezuela’s state oil company PDVSA, CITGO owns more than 4,000 service stations and three refineries with a combined processing capacity of 769,000 barrels per day (bpd). The Corpus Christi (Texas) refinery is allegedly seen as the firm’s most desirable asset by interested parties.

First published on Venezuela Analysis.