The competition for Citgo Petroleum is intensifying as a U.S. court auction enters its final phase. An oil refiner backed by activist investor Carl Icahn and a group of creditors with claims against Venezuela are among the top contenders vying for Citgo, according to sources familiar with the matter.
High Stakes Auction
Eighteen creditors, holding claims worth $21.3 billion against Venezuela, are pursuing proceeds from the auction of Citgo’s parent company shares. However, current bids fall short of covering the total debt. An investment group that includes miner Gold Reserve and a unit of Koch Industries has offered around $9 billion in combined cash and claims, while Icahn-controlled CVR Energy has submitted an $8 billion all-cash bid.
These offers surpass the highest $7.3 billion bid from an earlier round this year but remain below Citgo’s estimated market value of $11 billion to $13 billion. Robert Pincus, the court officer overseeing the auction, recently requested more time to evaluate the complex bids and finalize terms. Creditors are allowed to use claims against Venezuela in place of cash.
Strategic Alliances and Financial Maneuvers
The bidding process has enabled companies like Gold Reserve, which holds a $1 billion claim, and Koch Industries, with a $457 million claim, to partner with investors advised by Centerview Partners. These investors have contributed additional cash to strengthen their bid. While Gold Reserve and Koch Industries declined to comment, the auction’s dynamic nature allows bidders to enhance their offers by adding partners or increasing bid amounts.
In June, Gold Reserve secured $36 million through a private placement of shares and partnered with FJ Management to bolster its bid. At least five investor groups submitted binding bids in the second round, with three securing financing from banks and advisors, including JPMorgan, Morgan Stanley, and Rothschild & Co.
Future Implications and Legal Challenges
Despite the robust bidding, some creditors are expected to come away empty-handed due to the high volume of claims. Bondholders with secured claims against Venezuela have protested their exclusion from the auction process. Venezuela, embroiled in a political crisis following a disputed presidential election, has condemned the auction as the theft of its valuable foreign asset. Citgo and its supervisory boards have sought to delay the auction and garner U.S. support for maintaining Venezuelan ownership.
Citgo, the seventh-largest U.S. refiner by volume, has been under the control of boards appointed by Venezuela’s opposition since 2019, following the U.S. severing ties with PDVSA, Venezuela’s state oil company. They have remained highly profitable, with a net income of $410 million in the first quarter of this year and $2.04 billion in 2023.
U.S. Judge Leonard Stark has resisted significant delays in concluding the case, initially brought by miner Crystallex in 2017. Stark found Citgo’s parent, PDV Holding, liable for Venezuela’s debts and ordered the seizure of its shares. Pincus has called the recent bidding round “successful,” with several competitive bids submitted.
Once a finalist is identified, there will be a 21-day period for objections. A winner must be selected by August 22, with court approval required by October 15, subject to U.S. Treasury Department approval. Citgo, with its extensive assets including storage terminals, pipelines, and three oil refineries, remains a critical asset for Venezuela amidst its ongoing economic and political turmoil.
Source: Reuters
