US judge approves Citgo parent share sale plan

A US court-approved plan to sell shares of refiner Citgo's parent company to pay back creditors may still face challenges from competing claims and the US government.

Judge Leonard Stark of the US District Court in Delaware ruled this week that the sixth iteration of a proposed sale schedule for PdV Holding (PdVH) in the case may move ahead. It would likely generate enough to satisfy $970mn in remaining debts to defunct mining firm Crystallex, now owned by New York hedge fund Tenor Capital.

The sale of PdVH shares should generate at least $2.3bn, but Crystallex and ConocoPhillips — which has a separate $1.3bn claim on PdVH shares that the court is likely to recognize — could end up with less if the sale values the entire company below the claim amount.

None of the claims directly relates to debt incurred by Citgo: those obligations are put forward by holders of claims against the Venezuelan government or Venezuelan state-owned PdV.

The court order is a product of almost five years of litigation, started at a time when PdVH and Citgo — as well as PdVH parent company, PdV — were indisputably under the ownership and managerial control of President Nicolas Maduro's government. But a political crisis in Venezuela has left PdV under Maduro's control, while US-backed opposition leader Juan Guaido and his allies control an ad-hoc board that manages Citgo.

Crystallex welcomed the approval as a "near-final step" in the case. Citgo declined to comment.

Advisers to Guaido hold that sanctions that impede many financial transactions with Venezuela could shield Citgo from the sale plans. They fear the sale would lead to a break-up of the company — Venezuela's largest asset abroad — that they control.

"It is just the same situation — [the US Treasury Department] has not given authorization to dispose of Citgo assets," said a former deputy Venezuelan oil minister advising Guaido, who asked not to be named.

Auction not imminent

The court-approved schedule for the potential sale of PdVH shares indicates that the process is not likely to be completed until 2024. The court-appointed special master, a lawyer tasked with carrying out the sale, has six months from the 4 October order to consult Treasury's US Office of Foreign Assets Control (OFAC) on its support or lack of opposition to a sale.

Stark may allow the auction process to commence without an explicit US government guarantee but the scenario is unlikely as potential suitors are likely to be deterred by the threat of falling under US sanctions regime. The judge would make no final decision on a sale any sooner than 270 days — about nine months — from the auction launch date.

The long process in part seems designed to encourage an out-of-court settlement — Stark noted that the order would not keep the company from working out separate arrangements to satisfy creditors before the sale proceeds, an option that Guaido discussed in August.

A lawyer for Crystallex also acknowledged that other options are possible.

"Indeed, in light of Citgo's recently-reported profits, it seems clear that Venezuela can pay Crystallex to avoid a sale of Citgo," Rahim Moloo said.

Citgo reported record profits in the second quarter, drawing renewed legal efforts by its multiple creditors to try to collect, another Guaido adviser said.

But the two claimants explicitly mentioned in the Delaware court order have to compete with other creditors of Venezuela that are eyeing Citgo for satisfying their claims.

Separate US court proceedings involve holders of $3.4bn in PdV 2020 bonds guaranteed by 50.1pc in Citgo Holding — a PdVH-owned legal entity that directly owns Citgo.

The holders of PdV 2020 bonds face the same restriction from the US government on taking over Citgo.

And ConocoPhillips has been cleared to enforce a separate $8.5bn international arbitration award related to a 2007 expropriation of the US producer's Venezuela assets.

By Haik Gugarats and Carlos Camacho