Written by Marianna Paraga and Gary McWilliams
HOUSTON (Reuters) – A conditional offer by financial firm Elliott Investment Management for shares in Citgo Petroleum’s parent company will oversee an auction in a U.S. court that could determine future control of the Venezuelan-owned oil refiner. Officials said the selection was made by the staff.
A federal district court in Delaware is auctioning off shares in Citgo’s parent company, PDV Holding, to pay off up to $21.3 billion in expropriation and default claims against Venezuela and state oil company PDVSA. A second and final bidding round concluded earlier this year, leading to terms negotiations.
Elliott’s offer is a mix of cash and credit and is contingent on resolving claims by holders of defaulted Venezuelan government bonds seeking the same assets, the people said.
The value of Elliott’s offer was not immediately clear. The company declined to comment.
The investment firm’s acquisition of Citgo, the seventh-largest U.S. oil refiner, follows billions of dollars in gains from stakes in refiners Marathon Petroleum (NYSE:) and Phillips 66 (NYSE:).
However, Mr Elliott was not the operator of the refinery, and the court said this condition was preferable. As part of a series of investments, Elliott is a holder of Venezuelan government bonds.
Citgo had $2 billion in revenue last year, the company’s second-best annual performance. The company posted a profit of $385 million in the first half of this year.
Elliott submitted offers in two bidding rounds, competing with rival bids from U.S. oil refiner CVR Energy (NYSE:) and miner Gold Reserve. Gold Reserve called off the bid last week, citing delays and uncertainty in the sales process.
Disputed terms
The conditional nature of Elliott’s bid has prompted pushback from the Venezuelan parties to the case, as the judge initially said the selected offer must be binding and final. .
Despite the court’s order of priority for the claims, some bondholders, including a group led by the Gramercy Distressed Opportunities Fund, are pursuing their claims in separate court cases, which have been postponed five times. There is a risk that the sale process that has been underway will stall.
Early Friday morning, court clerk Robert Pincus informed the judge that he had ended negotiations with PDVSA’s 2020 bondholders without a resolution. Because the bonds are backed by Citgo stock, the dispute could affect the returns creditors receive in the case.
Mr. Pincus did not respond to requests for comment.
Thomas Larrier, a lawyer representing Venezuela’s committee of creditors, which includes holders of the 2020 bonds, declined to comment.
U.S. Justice Leonard Stark does not allow the selection of court staff. Next week, he plans to discuss a proposal to block bondholders from attempting to “step over the line” in Delaware’s list of creditors by filing suit in other courts. The court has scheduled a hearing to approve the sale for Nov. 19.
November conclusion unlikely
Experts say that even if Mr. Stark approves Mr. Elliott’s proposal, the Gramercy-led group could challenge his decision, which would ultimately prevent any decision on the proposal from being made until the dispute is resolved. will be frozen.
José Ignacio Hernandez, a lawyer at consulting firm Aurora Macro Strategies who has been closely monitoring the case, said there was a good chance bondholders would escalate their lawsuit.
“Resolving these disputes would add at least another three months to the sales process, making it unlikely to close by mid-November as proposed,” he said.
