Venezuela’s CITGO in Danger as Maduro Seeks Debt Renegotiation

US financial sanctions have stopped Venezuela from renegotiating foreign debt since 2017.

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CITGO refinery in Corpus Christi, Texas. (Eddie Seal)
CITGO refinery in Corpus Christi, Texas. (Eddie Seal)
By Ricardo Vaz
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Caracas, October 2, 2019 (venezuelanalysis.com) - A US court has ruled that Canadian mining giant Crystallex can move forward in seizing assets from Venezuelan oil subsidiary CITGO.

The World Bank’s international arbitration tribunal awarded Crystallex US $1.4 billion in compensation for the 2008 nationalization of Las Cristinas gold mine under during the government of Hugo Chávez.

Last year, a Delaware US district court judge reversed a prior ruling, allowing the company to seize shares from Venezuelan state oil company PDVSA’s US-based subsidiary, CITGO. The ruling was upheld by a US appeals judge in August.

On Monday, the 3rd U.S. Circuit Court of Appeals lifted a stay ordered by a lower court that had put a temporary halt on the sale of CITGO shares requested by PDVSA. The majority of CITGO’s shares are pledged as collateral on PDVSA”s 2020 bonds, while the remainder are pledged to Russian state energy giant Rosneft, also as collateral for multi-billion dollar loans. A $913 million payment for the 2020 bonds is due in October.

Valued at around $8 billion, CITGO has been at the center of a legal battle between the Maduro government and self-proclaimed “Interim President” Juan Guaido. After its assets were frozen by the Treasury Department in January, both parties have vied for control in US courts. In August, the Delaware Chancery Court threw out a lawsuit by the government seeking to unseat Guaido’s ad hoc CITGO board.

Guaido-appointed CITGO Chair Luisa Palacios said on Wednesday that the opposition needs “more support” from the Trump administration to stop the company from being taken over by creditors.

The latest court ruling comes amid renewed efforts by the Maduro administration to renegotiate its foreign debt. On Monday, the President Maduro ordered Vice President Delcy Rodriguez and Industry Minister Tareck El Aissami to contact bondholders around the world to establish a “schedule with immediate solutions.” Both Rodriguez and El Aissami have been sanctioned by the US Treasury Department.

Maduro told reporters that Venezuela was fulfilling payments on time before the imposition of financial sanctions in mid-2017. “We are ready to renegotiate and fulfill all our commitments, if in exchange the doors to external credit are open to us again,” he added.

The government had previously attempted to renegotiate with creditors in 2017, but financial sanctions forbidding US citizens and companies from dealing in Venezuelan state- or PDVSA-issued bonds put a halt to the process. Official debt figures have not been released since late 2015, but the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) estimates the total to stand at $139 billion.

Venezuela’s foreign debt was also a topic of discussion during Maduro’s recent trip to Russia. On Tuesday, Russian Foreign Ministry sources told media that the Venezuelan government has made debt repayments on schedule.

Since 2016, Venezuela has been mired in a deep economic crisis, which has been severely exacerbated by the imposition of US economic sanctions beginning in 2017 and escalating in 2019. In August, US President Donald Trump signed an executive order imposing what analysts have likened to a Cuba-style embargo, prohibiting all dealings with the Venezuelan state and authorizing secondary sanctions targeting foreign third party actors. According to economist Francisco Rodriguez, Venezuela’s economy is projected to shrink by an estimated 37.3 percent in 2019.

Edited and with additional reporting by Lucas Koerner from Philadelphia.