Bloomberg — A US diplomat is urging Venezuelan politicians that control Citgo Petroleum Corp. to negotiate with creditors to avoid a court-ordered sale of the refiner’s parent company.
The US Ambassador to Venezuela James Story met with a handful of Venezuela’s opposition members in Panama last month where he recommended they open negotiations with entities that have claims against PDV Holding Inc., the parent company, according to five people familiar with the conversations. Citgo is overseen by the opposition because the US recognizes it as Venezuela’s interim government.
Negotiating with creditors could potentially head off a plan to sell PDV Holding. In October, a US judge approved the bidding process for the public sale of the company to pay off $1 billion owed to Crystallex, a Canadian company whose gold deposit in Venezuela was seized a decade ago. The sale can’t go forward for now as Citgo is protected by the US government, but the judge set a six-month window on the process.
In the meetings, Story suggested that an ad-hoc board use cash flow from the refiner to help settle the debt, according to the people, who were not authorized to speak publicly on the matter. The Houston-based company reported net income of $1.3 billion in the second quarter. It’s expected to publish third-quarter earnings today or early next week.
The State Department did not immediately respond to a message seeking comment.
Horacio Medina, head of the opposition-appointed, ad-hoc PDVSA board, said the company is open to exploring options with creditors, but declined to elaborate on whether it planned to negotiate. It has retained JPMorgan Chase & Co. as an adviser.
A lawyer representing Crystallex in the case against PDV Holding said the company is open to discussions.
“Crystallex has always been willing to find a solution that avoids Citgo being sold to satisfy its judgment. Unfortunately, since the US sanctions have been in place, Venezuela has not engaged with Crystallex to discuss such a solution,” Rahim Moloo, a partner at Gibson Dunn, said in a statement responding to questions.
If the Treasury Department’s Office of Foreign Assets Control does allow a sale, a court-appointed special master would launch a bidding process to sell as many shares as needed to satisfy the judgment. However, potential buyers would likely be interested in no less than a majority stake of PDV Holding, a US-based subsidiary of Venezuela’s state oil company, Petroleos de Venezuela SA.
Venezuela’s opposition took control of PDV Holding after the Trump administration recognized Juan Guaido in 2019 as the country’s interim leader, severing ties with President Nicolas Maduro’s government. PDV’s only asset is shares of Citgo, a company with three refineries, six pipelines and thousands of employees.
Citgo did not immediately respond to messages seeking comment.
Others are attempting to line up behind Crystallex to recoup debts owed to them by the Venezuelan government. Citgo, the country’s biggest international asset, has been valued around $8 billion before liabilities, according to some analyst estimates.
Holders of defaulted bonds that were issued by Venezuela’s state oil company, PDVSA, have a lien on 50.1% of Citgo’s shares. The validity of those claims are in dispute after the Venezuelan opposition appealed a decision saying the bonds trustee could move to collect the collateral. The process is currently before New York’s highest court.
The bonds, which matured in 2020, trade around 18.5 cents on the dollar, according to data compiled by Bloomberg, down from around 28 cents at the start of the year.
Oil driller ConocoPhillips (COP) is also looking to collect on a potential sale of Citgo. The Houston-based company won a claim in 2013 for the expropriation of its assets in Venezuela by late Hugo Chavez. A range of other creditors, from holders of other defaulted bonds to expropriated companies that were never paid, have also introduced lawsuits but do not yet have a lien on PDV Holdings to recover what they claim they are owed.
The Venezuelan opposition controls Citgo as long as the US maintains recognition of Guaido as the country’s legitimate leader. However, the board appointed by his team to manage the company can’t engage in negotiations unless previously approved by the opposition-controlled National Assembly, an additional hurdle to move forward with the process.
--With assistance from Nicolle Yapur
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