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Canadian gold miner Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued for the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge this week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.
The Associated Press notes the ruling by Chief Judge Leonard P. Stark is unique: government assets such as Citgo’s parent, PDVSA, are as a rule protected from lawsuits targeting a state. Yet in Stark’s ruling, the judge said that Venezuela had blurred the lines between the government and the state oil firm, with a military official at the helm of PDVSA.
There is no reason to believe Crystallex will not seek to enforce the ruling as soon as possible after a decade-old legal battle. Should this happen, PDVSA, according to AP, might have to liquidate Citgo to get funds for the settlement. The company is worth a lot more than US$1.4 billion—it is valued at around US$8 billion—but cash-strapped Caracas does not have a lot of funding sources at the moment.
The judge has delayed the enforcing of the ruling for a week, possibly to give Crystallex and Caracas time to try and reach a payment agreement.
What could make matters worse for Venezuela is the fact that Crystallex is by far not the only company seeking compensation for the nationalization of its business in the country, and now more of those rulings could follow. ConocoPhillips is another one: the company earlier this year won a court order allowing it to seize PDVSA assets in the Caribbean as a way of getting US$2.04 billion in compensation for the nationalization of two projects by the Chavez government.
AP also quoted a broker from Caracas Capital Markets as saying bondholders could follow suit demanding their money, too. Bondholders are owed US$65 billion in bonds that Caracas stopped servicing a year ago.
"This was the most vulnerable low hanging fruit for debtholders to go after. It looks like Crystallex is the lucky lottery winner because they got there first," Russ Dallen said.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.