Citgo auction faces overhaul after year-long sale process collapses

The auction of shares in Citgo Petroleum’s parent company, PDV Holding, intended to settle $21.3 billion in claims against Venezuela and its state oil company PDVSA, is set to restart after being declared a failure.

US District Court-appointed adviser Robert Pincus has recommended a complete revamp, citing a chaotic and contentious process that has left creditors dissatisfied.

The revamped auction will begin on December 18, aiming to restore order and attract new bids.

What went wrong with the auction

The original sale process, designed to compensate creditors for Venezuela’s expropriations and debt defaults, has been mired in disputes.

At the heart of the controversy is a $7.3 billion bid from Amber Energy, an affiliate of Elliott Investment Management.

Amber had exclusive negotiating rights and proposed deferred payment terms, which many creditors criticized as overly favorable to Elliott.

Despite being declared the winner in September, Amber failed to finalize a deal. Its terms were met with objections from other creditors, who argued that the process lacked fairness and transparency.

At least two other groups expressed interest in re-entering the bidding if given the chance, further highlighting dissatisfaction with the process.

In a court filing, Amber warned that the proposed changes to the auction would create a “chaotic environment” and depress the purchase price.

The company has previously indicated it may withdraw if the court rejects its conditions.

The court adviser’s proposal

Following a year of unsuccessful negotiations and judicial admonishments, Pincus proposed restarting the auction under revised terms.

His plan largely aligns with US District Judge Leonard Stark’s recommendations for reviving the sale but rejects the suggestion to expedite competing claims on Citgo assets.

Pincus argued that such actions could deter potential bidders due to heightened risks.

The revamped process will grant bidders renewed access to Citgo’s financial and operational data, providing them with a clearer understanding of the company’s value.

The auction will formally relaunch on December 18, with a three-month bidding period. Pincus aims to deliver a final recommendation to the court by April, with Judge Stark expected to confirm a winning bid at a hearing in May.

What’s at stake

The stakes are high for both creditors and Venezuela. The $21.3 billion in claims represent compensation for a series of expropriations and defaults tied to PDVSA.

Citgo Petroleum, a US-based refiner and marketer of petroleum products, is considered one of Venezuela’s most valuable foreign assets.

The overhaul seeks to address the shortcomings of the initial process, including the lack of transparency and perceived bias.

The revised auction aims to attract more bidders, ensure fairness, and maximize the value of Citgo’s shares to benefit creditors.

The Citgo auction also carries significant legal and geopolitical implications.

It serves as a test case for how US courts handle disputes over foreign state assets, especially in cases involving creditor claims against nations like Venezuela.

The revamped process could set a precedent for future asset sales linked to international debt disputes.

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