Venezuela: Judge Sets CITGO Auction Date as US Treasury Extends Bond Protection

Venezuela’s most prized foreign asset is being targeted by corporations looking to collect on international arbitration awards.
CITGO refinery in Lemont, Illinois. (CITGO)

Caracas, July 22, 2023 (venezuelanalysis.com) – Delaware District Judge Leonard P. Stark has determined that a court-ordered sale of CITGO shares will begin on October 23.

Venezuela’s US-based oil subsidiary faces the possibility of being broken up to satisfy claims related to international arbitration awards in favor of multinational corporations.

Stark’s decision came after dismissing a last-ditch attempt from ad hoc authorities appointed by the Venezuelan opposition to delay the process. In 2019, the Trump administration seized CITGO and placed it under the management of the self-proclaimed “interim government.”

A defunct, opposition-controlled parliament appointed a CITGO ad hoc board that remains in place despite the dissolution of the Juan Guaidó-led parallel administration. Its lawyers argued that the auction would not secure the best value for the shares and that it should not proceed while there are other litigation cases underway.

“The Venezuela Parties’ objection is utterly unpersuasive, particularly in light of the lengthy history of this case,” the judge stated. “There is simply no reason to further delay starting the sale process.”

Stark approved a schedule presented by a court-appointed “special master” who will be responsible for seeking offers. A final sale could be wrapped in mid-2024. Though the winning bidder would require US government approval, the Treasury Department’s Office of Foreign Assets Control (OFAC) has promised a “favorable licensing policy.”

The court-mandated auction of CITGO shares was set in motion in October 2022 following a long-drawn legal battle initiated by Canadian miner Crystallex to collect an outstanding US $1 billion out of a $1.4 billion award granted by the World Bank’s International Center for Settlement of Investment Disputes (ICSID) in 2016 as compensation for the 2008 nationalization of a gold mine in Venezuela.

The sale will likewise settle $1.3 billion owed of a $2 billion award granted by the International Chamber of Commerce (ICC) to oil firm ConocoPhillips. In early July, the refiner suffered another setback when the Third Circuit appeals court ruled that state oil company PDVSA is Venezuela’s “alter ego” and thus, along with its subsidiaries, liable for the country’s debts.

The decision will allow six other corporations owed a combined $4 billion from ICSID awards to tag their claims to the Delaware share auction proceedings.

The Third Circuit confirmed an earlier verdict from Stark, who pointed to the Guaidó-led opposition’s running of CITGO to sustain the alter ego thesis. Crystallex was the first to obtain such a decision in 2019.

Despite the ongoing sales process, the present CITGO board is engaged in talks with several creditors in an attempt to secure out-of-court settlements. For its part, the Nicolás Maduro government has demanded that the subsidiary be returned to the Venezuelan state and stated that it will not recognize any agreements secured by the present administration.

Apart from the international arbitration claims, CITGO is also liable for defaulted PDVSA 2020 bond, to which 50.1 percent of shares belonging to CITGO’s parent company PDV Holding were pledged as collateral.

The Venezuelan government had prioritized servicing this bond before US sanctions made it impossible to fulfill payments. The bondholders are currently owed $2.1 billion.

On Wednesday, the US Treasury Department extended a ban on transactions involving the 2020 bond for three more months, until October 20. Washington imposed the protection to support the “interim government” so it would not lose Venezuela’s most valuable foreign asset. However, since the Guaidó-led body’s dissolution in January, the Biden administration has only renewed the protection for three-month periods.

The PDVSA 2020 bondholders have expressed concern that their claims will be marginalized in favor of the Delaware auction. Analysts have posited that the US Treasury Department might eventually help align the two processes’ timelines.

CITGO, which owns three refineries and over four thousand stations in the US, is currently valued at over $10 billion. It has not repatriated dividends to Venezuela since 2019 and has been very profitable in recent months as a result of soaring energy prices.

In addition to the Delaware claimants and bondholders, the company might also be targeted by ConocoPhillips in a separate case that saw the oil giant secure a massive $8.5 billion ICSID award that has since accrued more than $1.5 billion in interest. The ruling is undergoing an appeals process.

Nevertheless, ConocoPhillips won a default ruling to enforce the award after lawyers representing the “interim government” failed to appear in court for over a year. Guaidó and the hardline opposition have raised suspicions of malpractice, collusion and conflicts of interest over its handling of foreign assets.