HOUSTON: A U.S. court official managing an auction for shares in the parent company of Venezuela-owned Citgo Petroleum is advising a judge to select a $3.7 billion bid from a Contrarian Funds affiliate to establish the minimum for a new bidding process this year, as stated in a court document on Friday.
A federal court in Delaware is selling shares in Citgo's parent company, PDV Holding, to settle claims of up to $21.3 billion for 18 creditors pursuing compensation for debt defaults and expropriations in Venezuela. This time, the court chose to establish a minimum bid for PDV Holding after many companies in last year's auction turned down a $7.3 billion bid from an affiliate of Elliott Investment Management, which depended on the outcome of concurrent lawsuits filed by several of the same creditors.
Citgo Auction Sets Minimum Bid
The filing indicated that four possible "stalking horse" offers for shares in PDV Holding were submitted by the March 7 deadline. The proposal from Contrarian Funds partner Red Tree Investments was endorsed by the special master overseeing the auction. Judge Leonard Stark needs to approve or deny it before the auction proceeds. The filing stated that Red Tree's proposed transaction offers the second-highest purchase price, and the special master thinks it has the fewest conditions. The special master believes that the blend of value and the assurance of the suggested transaction makes it the top available stalking horse.
Canadian mining company Gold Reserve (GRZ.V) launched a new page and announced last week that a group composed of its subsidiary Dalinar Energy Corporation and divisions of U.S. conglomerate Koch had also put forth a proposal, per Reuters.
Red Tree and another subsidiary of Contrarian possess Venezuelan defaulted bonds and are among the 18 creditors pursuing cash returns from the auction, indicating that if their group's bid is successful, they will receive payment for their claims. According to court documents, they are collectively claiming approximately $680 million, along with interest and fees. Analysts deemed Red Tree's initial offer to be low, considering Citgo's market value surpasses $10 billion; however, they noted that a period for rival bids to follow could raise the final offer. "This proposal would settle the conflict with the PDVSA 2020 bondholders while generating $1.5 billion to compensate other creditors," stated Jose Ignacio Hernandez of the consultancy Aurora Macro Strategies.
"For Red Tree, it’s a financial arrangement rather than an operational one. However, Venezuela might challenge it, claiming it's insufficient," he mentioned.
The court's timetable indicates that the concluding hearing for the sale process is scheduled for July. Stark aims to optimize returns for creditors in the eight-year case by selecting a starting bid, which previously determined that PDV Holding is responsible for the nation's debts. PDVSA, based in Caracas, is the ultimate parent company of Citgo. If it succeeds in the process, the stalking horse would gain complete ownership of PDV Holding's shares, with the proceeds allocated to creditors upon closing. Red Tree's suggested deal includes $3.24 billion in cash along with $458 million in non-cash assets, as stated in the court documents. Citgo Petroleum, headquartered in Houston, is the most valuable asset of Venezuela abroad. Venezuela's leader Nicolas Maduro, has labelled the auction a "theft" of Venezuela's resources in the United States. His administration has condemned U.S. oil sanctions imposed on the nation, effective since 2019.
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