US court rules in favor of Citgo bondholders: Update 2
Adds detail.
A US federal court in New York today upheld the validity of defaulted Venezuelan bonds that pledged more than half of the country's US refining subsidiary, Citgo, as collateral.
US district judge Katherine Polk Failla's decision in favor of Venezuela's creditors does not immediately imperil Venezuelan control of the 760,000 b/d refining company. But the finding — that US support of stable bond markets trumped Washington's support for Venezuela's opposition government — leaves Citgo's ownership to appellate courts and White House decisions regarding sanctions.
"Venezuela has no power, save by the actions of this court or intervention by the United States, to stop defendants from enforcing their contractual remedies," Failla said. "And it is that impotence to complete the expropriation that makes clear that no taking has taken place in Venezuela."
Citgo and its US holding company, PdVH, declined to comment. Bondholder representatives could not be reached for comment.
Bondholders and companies seeking compensation for assets Venezuela expropriated roughly a decade ago have raced through US courts to claim rights to shares of Venezuela's US refining subsidiary, one of its most valuable overseas assets.
Failla reviewed dueling lawsuits between the US-recognized Venezuelan shadow government under National Assembly leader Juan Guaido and lenders who participated in a 2016 bond swap controlled by President Nicolas Maduro's government.
Guaido's government defaulted last October on $842mn in principal and $72mn in interest backed by a 50.1pc ownership interest in Citgo. The shadow government sued last October to have the bonds declared invalid. Venezuelan law required that the National Assembly approve the 2016 swap replacing PdV bonds that matured in 2017 and were close to default, they argued.
Ruling recognizes opposition
Failla's decision recognized the National Assembly as Venezuela's sovereign power dating back to 2015, when Maduro was still the US-recognized president of Venezuela. Bondholders had argued that Guaido and the National Assembly's authority began with his recognition in January 2019, and that retroactive recognition only applied to cases of a protracted revolution or other conflict with extended periods of uncertain control. The decision meant that contested National Assembly resolutions denouncing the bond swaps legislators passed in May 2016, September 2016 and October were acts of a foreign sovereign to which US courts generally defer.
That ultimately did not matter, though, because the resolutions did not plainly reject the bonds and because the debt and refining collateral were all executed in the US, the judge ruled. The assembly resolutions clearly applied to contracts with the "National Executive", not PdV, the judge said. The court found little support that the absence of explicit national assembly approval of the bonds also qualified as an act of a foreign sovereign, as the Guaido government had argued.
Venezuela's representatives "have sought to transmogrify ambiguously worded 2016 resolutions into judicially enforceable takings via the magic of 2019 hindsight," Failla said.
"Given the plain language and clear chronology of the resolutions, there is no basis for the court to find that the national assembly, through those resolutions, prevented the 2020 notes and governing documents from coming into existence," Failla wrote. "The court cannot stretch these earlier resolutions to accommodate plaintiffs' current arguments."
The case could have instead turned on a direct US government request to protect the assets of its recognized government. US reluctance to argue for a specific outcome in either case has frustrated judges wading through the morass of sovereign debt, contract law and geopolitical questions. Failla upbraided a US attorney during a September hearing for restating the legal arguments instead of taking a position on the case.
"Are you really going to sit on the sidelines, sir?" Failla asked.
US State Department special envoy on Iran and Venezuela Elliott Abrams had warned in a letter to the court that the loss of Citgo "would be greatly damaging and perhaps beyond recuperation" for US foreign policy goals. But the US government also noted in filings the importance of preserving laws governing contracts and bonds.
Ruling for the Guaido government would risk New York's status as a global center of finance, the stability of financial markets and invite more actions by "less honest foreign governments" to expropriate funds from creditors, Failla said.
"Such a reality, in the court's carefully considered view, presents just as great a risk of embarrassing the United States as opening the door to the defendants' sale or purchase of Citgo," Failla wrote.
Washington has preferred instead to rely on more direct executive branch authority over Venezuelan assets in the US. US sanctions imposed on Venezuela's oil sector in support of a Guaido-led national election and transition of power require Treasury Department approval of any efforts to sell Venezuelan assets in the US to satisfy court judgments or bond defaults. The US earlier this month extended to 20 January a block on any seizure of Venezuelan property.
Whoever voters elect in November could still intervene.
The New York case will proceed with, within 45 days, bondholders filing a calculation of the interest associated with the roughly $1.7bn owed to bondholder MUFG. The case will almost certainly enter an automatic stay and then proceed to the US 2nd Circuit Court of Appeals. Venezuela is losing its grasp on Citgo, but all parties will see the company slip away in very slow motion.
Related news posts
Colombia's electricity woes add to unrest against Petro
Colombia's electricity woes add to unrest against Petro
Bogota, 22 April (Argus) — Colombians took the streets of major cities and towns across the nation on Sunday to protest mainly against health, pension and labor changes, but potential power outages are also creating discontent. Authorities estimated that about 250,000 Colombians marched in widespread protests, sparked by changes in healthcare. Congress in April had rejected President Gustavo Petro's proposals in the sector, and the government the next day seized the two largest private-sector health insurers. Protesting healthcare workers say the government did this to implement changes through a back channel. "Regulatory noise and risk are likely to remain high amid announcements, proposals, and measures [that do not require congressional approval], aimed at changing the game's rules in strategic sectors," brokerage Credicorp Capital said. Colombians also protested being on the verge of electricity rationing like that in neighboring Ecuador as hydroelectric reservoirs remain at record-low levels. Several unions and other associations have long warned the Petro administration to take measures to offset the effects of the El Nino weather phenomenon. Electricity distributors last year called for allowing bills for energy purchased on the spot market to be deferred and for loosening price index rules, among other proposals. The national business council sent at least three letters to the president on the issue. At least nine separate letters calling for preparation to prevent blackouts were sent to the president and ministers. Several actions were only recently implemented . "There are no risk of electricity rationing in Colombia," former energy minister Irene Velez said in 2023. "We do not understand why some people are interested in generating panic." Government weather forecasts also overestimated rainfall expected for March, leading hydroelectric plants to use more water in the reservoirs than they otherwise would have, said director of the thermoelectric generation association (Andeg) Alejandro Castaneda. Reservoir levels stood at 29.5pc today, rising thanks to rains since 19 April, up from 28.75pc on 18 April. Electricity rationing is set to begin when reservoirs drop below 27pc, according to grid operator XM. By Diana Delgado Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Oman’s PDO to hit 700,000 b/d crude before 2030 target
Oman’s PDO to hit 700,000 b/d crude before 2030 target
Muscat, 22 April (Argus) — Oman's state-controlled PDO has several new greenfield projects that it is looking to bring on stream that should see it reach, and blow past, its target for 700,000 b/d of crude before the end of the decade. Speaking at the Oman Petroleum and Energy show in Muscat today, PDO's managing director Steve Phimister said the company has a portfolio of new "sizeable" projects in the pipeline and expects to reach 700,000 b/d by the "middle of the decade". "But what we would not be going to see in the next couple of years are multibillion dollar projects like Yibal Khuff or Rabab Harweel," he added. PDO's Yibal Khuff — one of Oman's most technically complex upstream projects — came online in 2021 and production was 20,000 b/d in 2022, according to the latest available data for production. Rabab Harweel , Oman's largest enhanced oil recovery (EOR) project, came onstream in 2018 and is producing more than 70,000 b/d. PDO adds around 10,000-15,000 b/d to its production on an average every year, according to Phimister. "Our strategy is to go above 700,000 b/d," he said. "We could, in principle, go quite way above 700,000 b/d of black oil, depending on oil price, shareholder's desire on where they want to invest". But he said PDO wants to grow in "a sustainable way" while "balancing out emission targets." The company in 2021 pledged to reach net zero carbon emissions from its operations by 2050 . The company is likely to hold onto its previous capital expenditure plans, although this is subject to final approval, Phimister said. "We have invested roughly the same amount of capital in the last few years and continue to do so," he said, adding that PDO now has a dual challenge of growing old business while reducing carbon emissions. PDO's planned capital expenditure for last year was $5bn and operating expenditure was at $2bn, in line with 2022 levels. The Omani state owns 60pc of PDO, Shell holds 34pc and TotalEnergies has 4pc. By Rithika Krishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
German products demand up on supply concerns
German products demand up on supply concerns
Hamburg, 22 April (Argus) — German demand for heating oil and fuels rose sharply in the past week, with consumer concerns that conflict in the Middle East could restrict product availability were coupled with falling domestic product prices. Spot trade of heating oil, diesel and E5 gasoline submitted to Argus reached their highest weekly averages since the start of the year. The last time this amount of heating oil was traded was in December last year, and for gasoline and diesel it was at the beginning of October. Gasoline demand surged particularly in the Emsland and South regions, and middle distillates were primarily traded in Rhine-Main and Southwest. The missile attack by Iran on Israel on 13 April and Israel's drone attack on Iran on 19 April have heightened concerns of further escalation. An open conflict between Iran and Israel could affect supply of crude and gasoil from the Middle East by threatening major shipping routes of the Suez Canal, the strait of Hormuz and the eastern Mediterranean. These concerns led some German consumers to fill their tanks. Concurrently, product prices have fallen across Germany, further stimulating demand. Refineries in Karlsruhe and Neustadt-Vohburg have drawn buyers with fuel oil and gasoline prices below the German average. Heating oil at Miro's 310,000 b/d Karlsruhe traded at more than €2/100l below the national average, while gasoline at Bayernoil's 216,000 b/d Neustadt-Vohburg traded at a discount of almost €6/100l to the same average. By Johannes Guhlke Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
ExxonMobil turns up heat on climate activists
ExxonMobil turns up heat on climate activists
New York, 22 April (Argus) — In the run-up to the annual proxy voting season, ExxonMobil is tightening the screws on climate activists it accuses of wasting the company's resources by repeatedly submitting the same shareholder proposals that have been resoundingly defeated in the past. In its 2024 proxy statement released this month, the top US oil major lays out the case against what it describes as "serial proponents" of ballot measures that abuse the shareholder proposal process by pushing their own narrow agenda at the expense of long-term shareholders. The campaign builds on a lawsuit filed against two investors at the start of the year that were leading the clamour for ExxonMobil to accelerate its climate goals and target emissions from customers. Dutch activist group Follow This and sustainable investment firm Arjuna Capital withdrew their motion in light of the lawsuit, but the oil major has continued with its legal action, arguing that "important issues remain for the court to decide". ExxonMobil is also calling for a stricter interpretation of rules governing the proxy process on the part of the US Securities and Exchange Commission (SEC). The lawsuit follows a growing backlash against environmental, social and governance investing by Republican-led states that has taken aim at large asset managers including BlackRock. The pushback has seen the SEC water down new climate risk disclosure rules following an intense lobbying effort by big business. And US bank JP Morgan chief executive Jamie Dimon recently slammed the White House's LNG export pause as "not only wrong but also enormously naive". The high watermark of the shareholder climate push came in 2021 when a tiny hedge fund overthrew a quarter of ExxonMobil's board with help from institutional investors concerned with the company's lagging financial performance. The difference between then and now is that oil industry profits have bounced back in the intervening years as the debate has shifted in favour of energy security following the war in Ukraine, sending ExxonMobil's share price to new highs. As a result, support for climate motions at oil companies has declined. ExxonMobil has four shareholder measures on the ballot for this year, down from 13 a year ago. Over at Chevron, the second-biggest US oil major, investors will vote on four shareholder proposals, down from eight in 2023. ExxonMobil is encouraging shareholders to vote against the proposals calling on it to cut executive pay incentives for emissions reductions, as well as carry out reports into pay in relation to gender and racial bias, the impact on workers and communities of the energy transition, and plastics. Ballot measures at Chevron include calls to implement reports on tax transparency and human rights practices. Early warning system? Only 3.55pc of the 140 resolutions filed at ExxonMobil annual meetings between 2014 and 2023 passed, the company says. The cost of considering each proposal is as much as $150,000. But proposals that initially attract only a small amount of shareholder support can sometimes act as an early warning system that spurs changes in company strategy further out, climate activists argue. ExxonMobil's lawsuit is an "aggressive effort to chill consideration among its shareholders about how the company is adapting its business model in light of the need for a fair and fast transition away from fossil fuels", advocacy group the Union of Concerned Scientists campaign director Kathy Mulvey says. Shareholder advocate As You Sow, criticised in ExxonMobil's proxy statement, accuses the major of attacking shareholder democracy. The board "should consider proposals on their merits, rather than assaulting the long-standing rights of company owners or their representatives", the group's president, Danielle Fugere, says. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more