Companies Submit Binding Offers for CITGO, Potentially Leading to Venezuela's Asset Loss
Cashing In: The Second Round of the CITGO Auction Heats Up
Caracas, June 17, 2024 (our website) - The conclusion of the second and final round of bidding in the court-mandated sale of Venezuela's US-based oil subsidiary CITGO has arrived.
Several corporations hurled in binding offers by the June 11 deadline as part of a process organized by a Delaware District Court, aimed at meeting various claims against the Caribbean nation totaling US $21.3 billion.
Last October, Judge Leonard P. Stark set the wheels in motion for the sale of shares belonging to PDV Holding (PDVH), CITGO's parent company. The process was initiated by Canadian miner Crystallex.
The auction procedure is set to pay out 18 creditors looking to collect on international arbitration awards on a "first come, first served" basis, based on when the court approved their writs. Crystallex ($1.0 billion), Tidewater ($80 million), ConocoPhillips ($1.3 billion) and O-I Glass ($700 million) claim the top spots.
According to Reuters, at least five groups of investors rolled out proposals. Wall Street banks JPMorgan, Morgan Stanley, and investment groups Rothschild & Co and Elliott Investment Management secured financing for auction bids.
Canadian mining corporation Gold Reserve made an appearance by presenting a credit offer, using its $1 billion debt as part of the bid. The offering was alongside Utah-based conglomerate FJ Management. The Delaware court allows companies or consortia to present credit plus cash proposals.
Meanwhile, Rumors regarding other interested parties, such as hedge fund Elliott Investment and Centerview Partners, surfaced, with the latter allegedly trying to join forces with ConocoPhillips. The US oil heavyweight is looking to enforce two arbitration awards worth $1.3 and $10.2 billion, respectively, but has held its cards close to its chest as far as a public bid announcement is concerned.Rusoro Mining, another Canadian company, last unveiled a non-binding offer in the previous round in January, but it's unclear whether they submitted a second-round bid. The company is owed $1.6 billion.
Bidders will allegedly be permitted to up their offers, stipulating that companies can top the winning bid by offering at least $100 million more, while the top bidder can "top off" its offer if necessary to recoup a credit claim in its entirety.
Court-appointed "Special Master" Robert B. Pincus and investment bank Evercore, acting as a consultant, will review the auction proposals. Roughly a month from now, Judge Stark will issue his final decision on July 15. The winning bidder needs US authorization to execute the sale. However, the Treasury Department has declared a pro-business stance, promising a "favorable licensing policy."
Should the offers fail to approach CITGO's valuation of $11-13 billion, the present CITGO board might persuade the court to open a third round of bidding. The highest amount put forward in the first round was merely $7.3 billion.
CITGO's board, appointed by the since-defunct Venezuelan self-proclaimed "interim government" headed by Juan Guaidó with US support, operates independently of Venezuela's elected authorities.
The US-backed political opposition has wielded control over Venezuela's most prized foreign asset since 2019, facing criticism for a string of actions that have accelerated the auction process for Venezuelan state-owned CITGO.
As the auction progresses, the future of CITGO hangs in the balance. With power struggles, creditor disputes, and sanctions on the table, the stakes couldn't be higher.
- ConocoPhillips, one of the top four creditors in the CITGO auction, holds an arbitration award worth $1.3 billion in the energy industry.
- A Canadian mining corporation, Gold Reserve, entered the bidding process with a credit offer, utilizing a $1 billion debt as part of its proposal in the oil-and-gas business.
- The auction proposals will be reviewed by "Special Master" Robert B. Pincus and investment bank Evercore, with a decision expected from Judge Stark on July 15, following policy-and-legislation and politics discussions.
- The potential winning bidder for CITGO will need US authorization to execute the sale, as the Treasury Department has promised a pro-business stance and a favorable licensing policy in the general news area.
- The Venezuelan-owned CITGO, currently managed by a board appointed by the US-backed political opposition, is a highly valuable asset amid power struggles, creditor disputes, and sanctions.
- Any offers that do not approach CITGO's valuation of $11-13 billion may lead the CITGO board, appointed by the self-proclaimed interim government, to propose a third round of bidding, following the trends in the finance and business industry.
