Guaido team takes on Wall St to shield Citgo

Venezuela's political opposition is preparing to file a lawsuit in a New York court to prevent bondholders from acting on their claim to state-owned PdV's US refining subsidiary Citgo for lack of payment, a move that has all but wiped out the odds of a consensual solution for Venezuelan commercial debt.

An "ad hoc" PdV board representing the team of Juan Guaido, who is recognized by Western countries as Venezuela's interim president, said today that it was unable to find a "reasonable solution" in negotiations with institutional investors that ended on 24 October. An official close to the board told Argus that "objectives are misaligned," adding that the suit would hopefully bring the two sides together.

On the same day, the US administration granted a three-month reprieve, until 22 January 2020, to allow the Guaido team to restructure a $914mn obligation backed by shares in Citgo.

Bondholders had been expecting more negotiations over the 90-day period, rather than an immediate court battle in which their ability to enforce their rights has been thwarted by the US Treasury.

"Despite all of the efforts to date, the ad hoc administrative board of PdV has not reached a reasonable arrangement with the 2020 bondholders," the board said today.

The board goes on to say that in the framework of the US Treasury's license that temporarily blocks bondholders from acting on the Citgo pledge, the board "will exercise legal actions geared toward the protection of its rights based on the invalidity of the 2020 bonds."

The bondholders were owed $842mn in principal and $72mn in interest today, but the Guaido team, which has administrative but not financial control over Citgo, said it was unable to pay.

The PdV 2020 bonds are backed by 50.1pc of the shares in Citgo, the fifth largest US refiner and the last major Venezuelan asset outside the country.

Although Washington gave its blessing to opposition control over Citgo's administration, PdV itself is still controlled by Venezuelan president Nicolas Maduro who has defied a nine-month US-led campaign to force him out of power. At the heart of the offensive are oil sanctions that the US imposed in late January 2019, days after Guaido declared his interim presidency in Caracas.

On 15 October, Venezuela's opposition-controlled National Assembly, which Guaido presides, reaffirmed its stance that the 2020 bond is invalid because it was not authorized by the assembly.

Financial sector executives close to the bondholders say the imminent lawsuit is a risky play for the opposition, which has focused squarely on "saving" Citgo while Maduro consolidates power inside the country. They contend that the legislature was never summoned to authorize PdV debt in the past, and that the opposition's May 2019 payment of $72mn in interest on the bond undermines its validity argument. In the long term, they say the confrontational approach will hurt the Guaido team's relations with Wall Street institutions that it will need to rebuild.

Officials close to Guaido say the May payment was made "under protest" and maintain that they need to protect Citgo from seizure because it will play a critical role in the country's future reconstruction, in terms of revenue and marketing of Venezuelan crude.

The US sanctions blocked US refiners, including Citgo, from importing Venezuelan crude, as well as the US export of diluent once essential to Venezuela's crude export programs.