Citgo auction pits Icahn-backed oil refiner, creditor group
02/08/2024 17:47
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Citgo ownership on the line with court-auction of shares
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Bids not close to $21.3 billion in claims against
Venezuela
By Marianna Parraga, Gary McWilliams and David French
HOUSTON, Aug 2 (Reuters) - An oil refiner backed by
activist investor Carl Icahn and a group of creditors holding
claims against Venezuela are competing in the last mile of a
U.S. court auction for Citgo Petroleum, according to three
people familiar with the matter.
A total of 18 creditors holding rulings for debt defaults
and expropriations in Venezuela totaling $21.3 billion are
pursuing proceeds from the auction of shares in Citgo's parent,
organized by a federal court in Delaware. But offers are not
expected to cover that amount entirely.
An investment group that includes miner Gold Reserve GRZ.V
and a unit of conglomerate Koch Industries have offered about $9
billion in combined cash and claims against Venezuela, two of
the people, who were not authorized to speak publicly about the
matter, said.
Icahn-controlled CVR Energy CVI.N separately submitted an
all-cash bid of about $8 billion, the people with knowledge of
the auction said.
Both current offers are above the highest $7.3 billion bid
submitted in a first round earlier this year, but far away from
Citgo's market valuation of between $11 billion and $13 billion.
The court officer overseeing the auction, Robert Pincus,
last week requested extra time to evaluate the complex offers
and reach an agreement on terms. Creditors can use claims
against Venezuela in lieu of cash in some cases.
The process has allowed companies including Gold Reserve,
which has a more than $1 billion claim, and Koch Industries,
with a $457 million claim, to join forces with investors advised
by investment bank Centerview Partners, who have contributed
cash to the bid, the two sources added. Creditors can apply
claims as equivalent to cash.
Gold Reserve and court officer Robert Pincus declined to
comment. Centerview did not have an immediate comment. Koch did
not reply to requests for comment. CVR declined to comment, but
the company's chief executive in late July told investors it was
exploring strategic transactions in refining.
Gold Reserve in June said it had obtained $36 million
through a private placement of shares and lined up a partner, FJ
Management, to support its bid.
At least five groups of investors submitted binding bids in
the second round, and three secured financing commitments from
banks and advisors including JPMorgan JPM.N , Morgan Stanley
MS.N and Rothschild & Co PIEJF.PK , people close to the
matter told Reuters in July.
SOME WILL END UP EMPTY-HANDED
According to the court's terms, bidders have an
opportunity to add further parties to their offers to boost
their value and can also top off their bids after submitted,
making the process dynamic.
But because of the mounting claims, some creditors will end
up empty-handed regardless of which of the offers the court
accepts. Bondholders with secured claims against Venezuela also
have protested they were largely shut out of the auction.
Venezuela, which is the middle of an acute political crisis
following a disputed presidential election, has called the
auction a theft of its prized foreign asset. Citgo and its
supervisory boards also have fought to delay the auction and win
U.S. support for retaining Venezuelan ownership.
The seventh-largest U.S. refiner by volume has been
controlled by supervisory boards appointed by Venezuela's
opposition since 2019, when the United States severed its ties
with Venezuela's state oil company, PDVSA.
The Houston-based company has been highly profitable. Its
first quarter net income was $410 million, and it earned $2.04
billion for all of 2023.
The U.S. judge overseeing the case, Leonard Stark, has
opposed any significant delay to finalizing the case, first
introduced by miner Crystallex in 2017. Stark found Citgo's
parent, PDV Holding, liable for Venezuela's debts and ordered
its shares seized.
In early July, Pincus said the bidding round had been
"successful," with several competitive bids received, a change
from a first bidding round in January considered "disappointing"
by Citgo's lawyers.
In a filing seeking more time to negotiate and evaluate the
bids, Pincus did not reveal the identities of any bidders. Citgo
said in court in July it had not been briefed about the bids.
Once a finalist is identified, the court will reserve a
21-day period for participants to object to the recommendation.
By Aug. 22, a winner must be selected, and the court has set
Oct. 15 to approve a winner subject to approval by the U.S.
Treasury Department.
Citgo, the crown jewel of Venezuela's foreign assets, has
storage terminals, pipelines and three oil refineries that can
process up to 807,000 barrels per day of crude oil into fuels.
(Reporting by Marianna Parraga and Gary McWilliams in Houston,
and David French in New York; Editing by Anna Driver)
((mailto:marianna.parraga@thomsonreuters.com; +1 713 371 7559;
Reuters Messaging: @mariannaparraga))