Maduro foes press White House to save Citgo: Update

Adds background from officials close to Guaido.

Venezuela's increasingly anxious political opposition is lobbying the White House to take executive action to block bondholders owed more than $900mn from seizing control of US refiner Citgo.

Venezuela's national oil company PdV, Citgo's parent company, had put up shares in the refiner as collateral on PdV 2020 bonds, which are the Opec producer's only debt instrument not in default. A payment on the bondholder debt is due before the end of the month.

Juan Guaido, head of Venezuela's opposition-controlled National Assembly who is also recognized by many countries as interim president, has administrative control over Citgo, even though PdV remains in the hands of his foe, Venezuelan president Nicolas Maduro.

"If Citgo is lost to Maduro's bondholders, the only one to benefit will be Maduro, and not Juan Guaido and the cause of democracy in Venezuela," Luisa Palacios, chair of the Guaido-appointed Citgo board, said this morning at an energy conference in Washington, organized by the Inter-American Dialogue.

The US government authorized the Guaido-led administration to tap into PdV's frozen US funds to pay $72mn in interest on the bonds in May. But payment due on 27 October is a more daunting $842mn in principal and $72mn in interest. The amortization payment has no grace period, unlike the interest, which has a 30-day cushion.

After providing support to ensure that Citgo is controlled by the Guaido authority rather than Maduro, "it would seem contradictory not to save Citgo from Maduro's bondholders," Palacios said.

Placing Citgo under the control of the National Assembly was a key accomplishment for Guaido, Palacios said. "To continue his story, we need continued support from the US administration."

The holders of the PdV 2020 bonds include staid Wall Street institutions such as Fidelity and T Rowe Price. Some of the firms have quietly offered to refinance the bond principal with the Guaido-led administration, and exploratory talks have taken place, according to a senior opposition official. But no deal has been reached.

According to another official close to Guaido, a negotiated refinancing of the bond obligations is the preferred approach, but if an agreement cannot be hammered out with the institutional investors, an executive order from the White House would be the next best outcome. A more remote possibility for Guaido's team is a court challenge of the validity of the bonds, which did not receive the requisite approval of the National Assembly when they were issued in 2016.

The final option is seen as a long shot, since the opposition already paid interest in the bond back in May. But either way, a Wall Street executive says the Guaido team has waited until perilously close to the payment deadline to try to find an off ramp for its obligations.

The US imposed oil sanctions on Venezuela in late January, shortly after Guaido declared himself acting president, a claim Washington and Latin American allies quickly recognized.

But the oil sanctions, which compound expanding financial and targeted individual sanctions, did not bring about the swift political transition that Washington had been expecting. As the year draws down and the White House focuses inward on possible presidential impeachment, Guaido is losing popular support at home, where a humanitarian crisis is unfolding, as well as the attention of some of his most vocal backers in Washington. In the region, stalwart ally Argentina is moving into more neutral ground on the Venezuelan issue.

The shifting political winds have not been lost on Guaido's cadre of exiles. At this morning's packed event, Palacios said the sanctions have helped "significantly" and celebrated their "very creative" design that has effectively carved out Citgo from operational impact. But she warned of a "loophole" that was "created and put in place when the Maduro regime was in charge of Citgo, and it was meant to not allow the Maduro regime to hide under the sanctions system as an excuse to not pay its debt. It was actually rational given the moment. But because the loophole remains, it would do exactly the opposite of what it was meant to do," she said.

The "loophole" cited by Palacios is a July 2018 guidance from the US Treasury Department's Office of Financial Assets Control (OFAC) clarifying that existing US sanctions will not impede the enforcement of court-ordered seizures of Venezuelan oil assets or gaining access to shares of Citgo pledged as collateral. OFAC clarified in January, after the US recognized Guaido as Venezuela's interim leader, that the guidance remained in effect.

OFAC, which enforces US sanctions programs, does not comment on possible changes to its programs. But a subtle revision of OFAC guidance may prove to be a more plausible procedural step than ring-fencing Citgo from influential creditors through a high-profile White House executive order.

Other creditors are aggressively pressing their own claims. A US District Court in Delaware late last month lifted a stay on proceedings that would allow Citgo shares to be sold to satisfy a $1.2bn arbitration claim by Crystallex, a former Canadian mining firm owned by US hedge fund Tenor Capital Management. But in that case, Citgo is effectively protected by US sanctions.

The Guaido team's defense of Citgo moved into more formal territory yesterday, with National Assembly authorization of the one-time use of up to $2mn in PdV's funds embargoed in the US "only and exclusively for the payment of professional fees needed to meet the most urgent and prioritized need to defend its assets extra-judicially and judicially."

The controversial move could not have been made without tacit US government approval.

It is not clear how much money PdV has embargoed in US banks, but the US government appears to be reluctant to release it. Critics say whatever is available should be directed to desperately needed food and medicine in Venezuela, rather than foreign lawyers.

Guaido's team of Venezuelan exiles are mostly working pro bono, creating strains among technical staff. The US Agency for International Development has provided some funds to pay salaries and cover administrative expenses.

Citgo, considered Venezuela's most valuable remaining asset, has 750,000 b/d of capacity across three US refineries, in addition to associated pipelines and terminals.