US Treasury extends block on takeover of Citgo

The holders of a defaulted Venezuelan bond backed by shares in US refiner Citgo will be unable to press for a takeover for another three months, even as other creditors are vying for the ownership of Venezuela's most valuable foreign asset.

The US Treasury Department today extended a prohibition on a potential takeover of Citgo by holders of Venezuelan state-owned PdV's 2020 bond until 20 October, from the current deadline of 22 July. The action prevents PdV 2020 bondholders, including Wall Street financial institutions, from exercising their right to seize 50.1pc of Citgo for missed principal and interest payments.

Treasury initially took action to prevent a takeover of Citgo by bondholders last year, aiming to facilitate talks between the bondholders and Venezuelan opposition leader Juan Guaido's shadow administration, which has effective control over Citgo but no authority over its Caracas-based parent company PdV. The Guaido administration last year defaulted on $842mn in principal and $72mn in interest, giving the PdV 2020 bondholders a nominal right to take over its share in Citgo.

But negotiations between the bondholders and the Guaido team broke down last year. Treasury's action will ensure that "the so-called creditors of the ‘PDVSA Bonds 2020' cannot act" against Citgo, Guaido's envoy in Washington, Carlos Vecchio, said today, alluding to the Guaido administration's argument that the bond debt is invalid.

The PdV 2020 bondholders claim priority rights over their share in Citgo under the bond covenant — but the US refiner is the subject of separate claims in US courts from other creditors of PdV and the Venezuelan government. Among them are former Canadian mining firm Crystallex, which is now controlled by New York hedge fund Tenor Capital, and US independent producer ConocoPhillips, both of which are pursuing a takeover of Delaware-based PdV Holding, which controls Citgo, to make good on international arbitration awards related to the Venezuelan government's takeover of their assets.

Citgo's problems highlight political and legal challenges that originated in January 2019, when the US recognized Guaido as Venezuela's interim leader and declared Venezuelan president Nicolas Maduro to be illegitimate. Washington intervened to help install a new board and management at Citgo, appointed by the Guaido administration. But PdV remains under Maduro's control. Neither Maduro nor Guaido has access to Citgo's revenue.

It has fallen to US courts to decide whether it matters which Venezuelan government enjoys US recognition when it comes to satisfying claims by Caracas' creditors. A US federal court ruled in May that upholding debtholders' rights outweighs any political considerations.

Bondholders have pressed their case in New York this week that debt issued by the Maduro government using Citgo as collateral was both valid and in default. The Delaware Supreme Court heard arguments last week over whether Guaido, as an interim president, had the authority to appoint a Citgo governing board. And oral arguments are scheduled at the US District Court for Delaware on 17 July to weigh the future of a proposed sale of Citgo shares to satisfy international arbitration debts.

By Haik Gugarats and Elliott Blackburn