US blocks bondholder takeover of Citgo

Venezuela's main political opposition has won a three-month reprieve from the US to restructure a $914mn obligation backed by shares in state-owned PdV's coveted US refining asset, Citgo.

The US Treasury Department's Office of Foreign Assets Control (OFAC) today blocked a potential takeover of Citgo by holders of a PdV 2020 bond until 22 January. Without that action, the bondholders could have exercised their right to seize 50.1pc of Citgo if they did not receive $842mn in principal and $72mn in interest on 27 October.

The bondholders will be unable to carry out any transactions with the bond, including trying to seize the Citgo shares pledged as collateral, between 24 October- 22 January, OFAC said in a guidance.

"To the extent an agreement may be reached on proposals to restructure or refinance payments due to the holders of the (PdV 2020) percent bond, additional licensing requirements may apply," OFAC said. The agency, which enforces the US sanctions programs, said it "would encourage parties to apply for a specific license and would have a favorable licensing policy toward such an agreement."

Venezuelan National Assembly speaker Juan Guaido's shadow administration, which has nominal control over Citgo but no authority over PdV, says it is unable to pay. It had asked the US administration to intervene to prevent a takeover of Citgo by the bondholders.

A senior US State Department official earlier this week indicated that Washington preferred to facilitate a negotiated agreement between the Guaido authority and the bondholders, instead of taking the legally challenging step of preventing the US holders of the debt from enforcing their rights.

The decision today effectively sets aside more than three months to negotiate a settlement. Today's action temporarily revokes an exemption the PdV 2020 bondholders received last year from the terms of an executive order issued by President Donald Trump, which prohibited most transactions with Venezuelan sovereign and PdV bonds.

Talks with some bondholders already started after a resolution passed by Venezuela's opposition-controlled national assembly on 15 October declared the bond unconstitutional. In the longer term, what some already view as an effective debt repudiation by Guaido could alienate the very lenders a future Venezuelan government will need to rebuild the country. Reconstruction of its oil-based economy is expected to cost as much as $200bn.

The US administration recognizes Guaido as the country's interim leader. The US imposed sanctions on PdV in January in a bid to force out Venezuelan president Nicolas Maduro's government. But Maduro remains in control of the country even though the sanctions have pushed down oil production and exports compared with last year.

PdV's crude output averaged about 730,000 b/d on 18 October, up from about 650,000 b/d at the end of September, but still below the 1.2mn b/d pre-sanctions level, according to Argus estimates.