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Venezuela's Prize Oil Asset May Soon Be Up For Grabs

Venezuela’s opposition is getting ready to file within days a lawsuit in the United States seeking to prevent bond holders of Venezuelan state oil firm PDVSA from going after shares in its U.S. subsidiary Citgo over an expected PDVSA bond default this month, Reuters reports, citing three sources familiar with the matter.

PDVSA has to make a payment of US$913 million on the 2020 bond in late October, but the bond is widely expected to go into default because the Venezuelan oil firm doesn’t have the money to make the payment.

PDVSA, however, has used shares in its most prized foreign asset, Citgo, as collateral for the bond. The bonds are backed by 50.1 percent in the U.S.-based refiner, so should the bond default, bondholders may rush to claim shares of Citgo. Investment manager Ashmore Group plc has urged PDVSA to pay the bond, and in case of a bond default, it could launch legal actions for auctioning off Citgo shares so that creditors are paid, Bloomberg reports.  

Now advisors to Venezuela’s opposition leader Juan Guaidó are ready to argue in a U.S. court that the bond was illegal in the first place, because at the time of its issuance, Nicolas Maduro’s government had not asked permission from Venezuela’s national assembly to use shares in Citgo as collateral, according to Reuters’ sources.

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Earlier this year, the Venezuelan opposition made a US$71-million payment on the bond, which could complicate the opposition’s argument that the bond is illegal.

Last week, several U.S. lawmakers—mostly Republicans and mostly representing Texas and Louisiana where Citgo has refineries—asked U.S. President Donald Trump to take executive action to stop PDVSA’s bondholders from potentially seizing Citgo.

Citgo Petroleum Corporation is one of the largest oil refineries in the United States. The company’s refineries in Texas, Louisiana, and Illinois have a combined total refining capacity of around 749,000 barrels per day (bpd). Citgo’s current operations are managed by two dueling boards of directors—one appointed by Maduro and one appointed by Guaidó, and both are digging in over the power struggle for Venezuela’s U.S.-based refinery that rakes in US$30 billion in revenue.  

By Tsvetana Paraskova for Oilprice.com

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