An auction of shares in PDV Holding, the parent company of Venezuela-owned refiner Citgo Petroleum, which has been in the works for a long time, is scheduled to initiate a sale hearing on Monday in a US court in Delaware.
The proceeding, which represents a watershed moment in long-running litigation over payment for creditors linked to Venezuela’s seizures and defaulted notes,
According to Reuters, Judge Leonard Stark will hear from creditors, witnesses and experts on which bid should win the contest for PDV Holding over the next four days.
If found warranted, the judge could set a new round of hearings for October, further extending a battle over one of Venezuela’s most prized foreign resources.
The fate of the seventh-largest US refiner hangs in the balance after PDV Holding lost a legal battle involving billions of dollars of Caracas liabilities.
That ruling cleared the way for 15 companies that had been expropriated and bondholders with defaulted interest payments to target Citgo assets in the hope of obtaining billions.
A contest between Gold Reserve and Amber Energy
According to a July court document, the initial top bid came from a Toronto-listed miner’s Gold Reserve affiliate. For years, the company has sought restitution for the expropriation of its Venezuelan interests.
But the review took a dramatic twist last month when officer Robert Pincus changed his recommendation in favour of Amber Energy, a partner of Elliott Investment Management.
In the end, Pincus deemed Amber’s $5.9 billion bid the better of the two after a late bidding war.
Amber’s offer was soon challenged by rival claimants and their lawyers, who filed motions to disqualify it.
Turmoil over the dispute has devolved into a wider conflict between claims by firms for restitution of assets seized during the years of socialist governance and holders of defaulted bonds from the Caracas-based oil-producing nation.
Amber’s bondholder pledge draws scrutiny
Amber’s bid includes a $2.1 billion cash payment to holders of bonds issued by Venezuela’s state oil corporation PDVSA in 2020.
The offer seeks to settle a long-running dispute being considered in a separate New York court.
If accepted, the proposal might resolve that claim and streamline the distribution of proceeds from the Delaware sale. However, the move has sparked controversy.
The Gold Reserve, lawyers for Venezuela, and many creditors contend that no payments should be made until the legitimacy of the bonds is determined in New York.
The resolution of that disagreement is essential in determining how much of the auction proceeds will be divided among the 15 creditors gathered in Delaware. They are demanding a total of $19 billion.
Legal and geopolitical stakes
The Delaware court must now consider not just the financial conditions of the rival bids, but also the complicated legal and geopolitical implications of granting control to Citgo’s parent corporation.
Amber’s inclusion of bondholder payments raises the question of whether the court can or should preempt the New York proceedings.
At the same time, the Gold Reserve case reflects long-standing claims made by firms whose assets were nationalised by Venezuelan administrations in the past.
“The auction hearing on September 15 will serve as the first stress test of whether the Amber bid can survive the full gauntlet of procedural, legal, and geopolitical risks,” lawyer Jose Ignacio Hernandez of consultancy Aurora Macro Strategies wrote in a report last week.
A precedent-setting decision
The Delaware hearing is the culmination of years of litigation, which began in 2017 when creditors moved to seize Citgo assets.
The process has morphed into a politically charged, high-stakes test of the US courts’ approach to sovereign debt defaults and compensation claims of foreign governments through expropriation.
The ultimate decision of Judge Stark will influence both who buys PDV Holding, and what form and when creditors get compensated.
The stakes are huge: billions of dollars and the fate of a large US refiner, but it also could establish precedent for future cases involving state-owned companies caught in international spats.
For now, days of testimony and cross-examination face both bidders and creditors as a Delaware court weighs one of the biggest corporate asset sales in years.
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