Venezuela’s Opposition Declares PDVSA 2020 Bond Void, Nixes Payment

Venezuela’s CITGO could be seized by creditors.

citgo.jpg

CITGO headquarters in Houston, Texas. (Reuters)
CITGO headquarters in Houston, Texas. (Reuters)
By Lucas Koerner
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Philadelphia, October 16, 2019 (venezuelanalysis.com) – Venezuela’s opposition-held National Assembly (AN) passed a resolution Tuesday branding the country’s 2020 PDVSA bond “invalid.”

The move comes on the eve of a hefty US $913 million payment to creditors due October 28. Non-payment could mean the loss of Venezuelan state oil company PDVSA’s US subsidiary, CITGO, the majority of whose shares are pledged as collateral on the 2020 notes.

The opposition, led by AN President Juan Guaido, argues that the bond is illegal on the grounds that it was emitted without the permission of parliament and is reportedly seeking to have it annulled in US courts.

Under Venezuela’s constitution, all new sovereign debt must be approved by the AN, though PDVSA has customarily had autonomy over its borrowing. After taking office in January 2016, the AN’s opposition leadership refused to approve new foreign debt despite the country undergoing a crisis triggered by the collapse of global oil prices. The parliament was later declared in contempt amid a protracted standoff with the executive and the Supreme Court.

Ruling Socialist Party legislators, who recently rejoined the legislature after a two year absence, have criticized the resolution, pointing to the AN’s payment of US $71 million in interest on the same bond earlier this year.

In May, the parliament authorized the payment despite animated protests from opposition hardliners, moving the AN leadership to suppress debate.

Guaido proclaimed himself “interim president” in January and was immediately recognized by Washington and its allies. He has since moved to take control of Venezuelan assets abroad and named ad-hoc boards for several companies, including CITGO, whose control has been disputed in US courts. The company is also imperiled after a US court ruled that Canadian mining giant Crystallex could seize CITGO shares over a $1.4 billion arbitration dispute.

Guaido’s handpicked “special prosecutor,” Jose Ignacio Hernandez, has unsuccessfully lobbied the Trump administration for an asset protection order that would shield CITGO from seizure in the event of default. Hernandez is himself under investigation by Venezuela’s attorney general for his previous role as a consultant to Crystallex.

This week, a bipartisan group of US lawmakers led by Florida Republican Senator Marco Rubio signed a letter to President Donald Trump pressing him to sign an executive order safeguarding the PDVSA subsidiary.

Rubio has been one of the most vocal advocates of harsh US economic sanctions against Venezuela, which are estimated to cost Venezuela approximately $17 billion in lost revenue annually.

The sanctions include financial restrictions which since 2017 have prevented the country from renegotiating its burgeoning foreign debt, estimated by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) to stand at $139 billion. The US sanctions regime was escalated to a comprehensive embargo in August, forbidding all dealings with the Venezuelan government and state companies as well as authorizing secondary sanctions against third-party actors.

According to Bloomberg, London-based investment fund Ashmore Group owns 51.01 percent of the PDVSA 2020 notes as of June 30. If the Guaido-appointed ad hoc CITGO board fails to make good on the payment by October 28, Ashmore could initiate proceedings for CITGO shares to be auctioned off to the highest bidder.

With additional reporting by Ricardo Vaz from Caracas.

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