US keeps Citgo shielded from bondholders for now

The US Treasury has once again extended the suspension of a 2018 license for PdV2020 bondholders to execute their claim to shares in US refiner Citgo until 21 January 2022.

The PdV2020 8.5pc interest bonds, in default like the rest of Venezuela's debt, are unique because of their 50.1pc collateral in Citgo Holding, the Delaware-based parent of Citgo Petroleum.

The Treasury has been blocking the bondholders from exercising their rights to Citgo since October 2019. In parallel, arbitration claimants led by Tenor Capital Management and ConocoPhillips are pursuing Citgo's indirect parent PdV Holding in US courts for unpaid awards.

Citgo is an arm of Venezuela's national oil company PdV, but the refiner was effectively severed from its parent in 2019 when the US withdrew recognition of Venezuelan president Nicolas Maduro and imposed oil sanctions designed to remove him.

Since then, Citgo has been nominally controlled by Venezuela's political opposition, which considers the PdV2020 bonds to be invalid because the 2016 debt swap from which they emerged was not approved by the National Assembly that it controlled at the time.

The repeated US extensions of the suspension on the bondholders' lien on Citgo, coupled with a ban on Venezuelan bond trading by US persons, has been a source of frustration among US institutional investors and hedge funds. A small group of non-US funds has been buying some of the distressed debt in anticipation of a short-term recovery and debt-for-equity swaps along the lines of a recent Dominican Republic transaction.

The extension of the US protection of Citgo coincides with negotiations between the Maduro government and his main opponents. The Norwegian-brokered talks, taking place in Mexico, have focused mainly on social welfare so far. Under a partial accord struck last weekend, the two sides are reviewing cases of financial sanctions overcompliance seen as an obstacle to aid procurement.