US again blocks Citgo takeover by PdV creditors

The holders of a defaulted PdV 2020 bond backed by shares in US refiner Citgo will be unable to press for a takeover until 19 January, even as the fate of Venezuela's most valuable foreign asset is being decided in US courts.

The US Treasury Department today extended a prohibition on a potential takeover of Citgo by holders of Venezuelan state-owned PdV's 2020 bond by a further three months, from the previous deadline of 20 October. 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 to help Venezuelan opposition leader Juan Guaido's shadow administration, which has effective control over Citgo but no authority over its Caracas-based parent company PdV.

Guaido's shadow authority 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.

At the most recent hearing in US District Court for the Southern District of New York, a federal judge pressed the bondholders and representatives of Venezuela's opposition to explain how they would treat debt issued by PdV in 2016, when Venezuelan president Nicolas Maduro was still recognized by the US.

Guaido's shadow administration is suing to invalidate the debt, arguing Maduro's PdV issued it illegally without the consent of the opposition-controlled National Assembly.

The US government has told the court that the loss of Citgo would be damaging to US policy goals. But the Justice Department has offered no arguments on how to address the legal implications of the validity of the contract or bonds.

Aside from the bondholders, other creditors of PdV and the Venezuelan government have asked US courts to satisfy their claims by putting Citgo on the block.

Legal claims for Citgo highlight political and legal challenges that originated in January 2019, when the US recognized Guaido as Venezuela's interim leader and declared Maduro to be illegitimate. The challenges for other western countries that recognize Guaido also came to light in a UK court of appeal decision yesterday over whether Maduro or Guaido has authority over more than $2bn in gold stored in the Bank of England.

The US presidential election in November adds another complication. The latest extension of a prohibition on taking over Citgo expires a day before President Donald Trump's current term in office ends. Guaido's claim to the interim presidency expires even sooner, when the term of the Venezuelan National Assembly that he heads ends on 5 January, after the 6 December elections that he has pledged to boycott. Trump's administration says it will continue to recognize Guaido as Venezuela's interim leader.

Trump's Democratic challenger, former vice president Joe Biden, has offered few clues on how he intends to address the complicated political and legal issues arising from the crisis in Venezuela, aside from making it easier for Venezuelan migrants to stay temporarily in the US.

In a meeting yesterday with Hispanic-American community leaders in Miami, Florida, Biden blasted Maduro as a dictator and said he would continue to use sanctions to press the Maduro government to hold free and fair elections.

But the Biden team says he will work with US partners abroad to resolve the crisis in Caracas — suggesting more active participation in less confrontational efforts by Norway, the EU, Mexico and Uruguay to settle Venezuela's political crisis through humanitarian aid and dialogue, including with the Maduro government.

By Haik Gugarats