Venezuelan control over CITGO oil company narrows as businesses put forth binding bids
Title: CITGO Auction Wrapping Up: Red Tree and Gold Reserve-Led Consortium in a Tight Battle
June 17, 2024 (our website) - We're gearing up for a nail-biter as the final round of bids for Venezuela's US-based oil giant, CITGO, nears closure. Multiple corporations have thrown their hats in the ring, creating a tense competition.
In October 2022, a Delaware District Court initiated the sale of CITGO's parent company, PDV Holding (PDVH)'s shares, following a move by Canadian miner Crystallex. The auction process was set in motion to fulfill a whopping $21.3 billion worth of claims against the nation.
Several corporations submitted binding offers by June 11, as part of a process initiated by Crystallex. The sale will pay off 18 creditors based on when their writs were approved by the court, with Crystallex, ConocoPhillips, O-I Glass, and Tidewater leading the pack.
At least five groups of investors presented proposals, with Wall Street banks JPMorgan, Morgan Stanley, and investment groups Rothschild & Co and Elliott Investment Management securing financing for the auction bids.
The Gold Reserve-led consortium, which includes Rusoro Mining and Koch Industries, submitted an impressive $7.1 billion bid. However, they have protested the court's selection of Red Tree's lower bid, claiming it undervalues CITGO, currently appraised at $11–13 billion.
On the other hand, Red Tree Investments (a subsidiary of Contrarian Capital Management) serves as the "stalking horse" bidder, having offered $3.7 billion ($3.24 billion cash and $458 million non-cash considerations). They have a key advantage: they aim to settle litigation risks tied to PDVSA’s 2020 bonds by offering convertible notes to bondholders, potentially resolving a major legal hurdle.
Other rumored parties include hedge fund Elliott Investment and Centerview Partners, who have reportedly tried to join forces with ConocoPhillips, another big contender in the race.
Knowing the stakes, the current CITGO board may petition for a third round of bidding if offers remain substantially lower than the company's valuation.
CITGO's board was appointed by the Juan Guaidó-led group and doesn't respond to any Venezuelan elected authorities. This US-backed opposition has been under fire for their control over one of Venezuela's most valuable foreign assets since 2019, drawing criticism for the likely change of ownership of state-owned CITGO.
In recent weeks, there have been calls upon the Biden administration to intervene in the court-mandated CITGO sale to shield anti-government factions from potential political costs in Venezuela's upcoming July 28 presidential elections.
The Maduro government has spoken out, issuing a statement rejecting the sale and vowing to take necessary action against those involved in the process, calling it "plundering" and another "episode of the US' multi-pronged aggression against Venezuela."
In addition to the Delaware procedure, CITGO is also accountable to PDVSA 2020 bond owners, as 50.1 percent of CITGO's shares were pledged as collateral. The US Treasury has intervened to block bondholders from executing the collateral, with the protection expiring if CITGO changes hands.
CITGO owns more than 4,000 service stations and three refineries with a combined processing capacity of 769,000 barrels per day (bpd). The Corpus Christi (Texas) refinery is said to be the firm's most attractive asset for potential buyers.
Stay tuned as the final bids roll in! The Delaware court has set July 15 as the deadline to announce the winning bidder, with the Treasury Department promising a "favorable licensing policy."
[1]: "CITGO Auction: Contenders, Bids, and the Latest Updates" - Our Website[2]: "Gold Reserve-led Consortium Submits $7.1 Billion Bid for CITGO" - Reuters[3]: "Red Tree Investments' Offer in CITGO Auction Includes Convertible Notes for PDVSA Bonds" - Forbes[4]: "Gold Reserve-led Consortium Challenges Red Tree's Lower Offer in CITGO Auction" - Bloomberg[5]: "Red Tree Investments Secures Stalking Horse Status in CITGO Auction" - Court House News
- The Red Tree Investments' offer, worth $3.7 billion, includes convertible notes for PDVSA's 2020 bonds, a strategy that aims to settle litigation risks, providing a potential advantage.
- A Gold Reserve-led consortium, including Rusoro Mining and Koch Industries, submitted an impressive bid of $7.1 billion, but have expressed concerns that the court's selection of Red Tree's lower bid undervalues CITGO.
- ConocoPhillips and Elliott Investment Management are among the corporations that have submitted binding offers in the CITGO auction, with Elliott allegedly trying to join forces with ConocoPhillips.
- In the oil-and-gas industry, CITGO's most attractive asset for potential buyers is their Corpus Christi refinery in Texas, with a processing capacity of 769,000 barrels per day.
- The Venezuelan government, under President Maduro, has rejected the court-mandated CITGO sale and vowed to take necessary action against those involved, calling it "plundering" and another "episode of the US' multi-pronged aggression against Venezuela."
- The current CITGO board, appointed by the Juan Guaidó-led group, has not responded to any Venezuelan elected authorities, leading to criticism for their control over one of Venezuela's most valuable foreign assets since 2019.
- The energy sector, finance, policy-and-legislation, general news, real-estate, politics, and investing industries are all closely watching the CITGO auction, as the final bids could have significant implications for the oil-and-gas industry and US-Venezuelan relations.
