Contemporary Venezuela: Elliott, the Vulture Fund, chosen as victor in court-ordered CITGO auction
Rewritten Article:
September 29, 2024: In Lisbon, Portugal, news broke that US investment firm Elliott Investment Management has emerged victorious in the court-mandated auction for Venezuela's US-based refiner, CITGO.
Records reveal that court-appointed Special Master Eric B. Pincus picked Elliot's $7.286 billion bid for PDV Holding (PDVH), CITGO's parent company. The offer hails from Elliott's affiliate, Amber Energy.
Back in October 2022, Delaware District Judge Leonard P. Stark initiated a sale of PDVH shares to settle claims from 18 creditors against Venezuela, amounting to a staggering $21.3 billion, primarily resulting from international arbitration awards. The process was kickstarted by Canadian mining company Crystallex.
The second round of binding offers concluded in June, with other participants including oil refiner CVR Energy and miner Gold Reserve. The latter, having a $1 billion claim, withdrew from the auction last week.
Gregory Goff, Amber Energy's CEO, expressed gratitude towards Pincus for selecting the firm's proposal and promised to establish a foundation for long-term success. In a statement, Amber stated their plans to strengthen CITGO through operational enhancements, growth initiatives, and a focus on sustainability.
The successful bid, substantially below the total liability and prior CITGO valuations of $11-13 billion, incorporates a mix of cash and credit. It remains unclear whether Elliott conveyed with any of the Delaware creditors.
The offer will accommodate a portion of the claims on a "first come, first serve" basis. Crystallex ($1.0 billion), Tidewater ($80 million), ConocoPhillips ($1.3 billion), and O-I Glass ($700 million) top the list. In addition to the Delaware proceedings, ConocoPhillips has also sought recovery via separate judicial avenues, including efforts to seize Venezuelan natural gas proceeds from joint projects with Trinidad and Tobago.
Elliott Investment Management was established by vulture capitalist and billionaire Paul Singer, who serves as the company's CEO. The hedge fund has garnered notoriety for its focus on distressed securities, particularly sovereign debt from countries on the brink of default or insolvency.
The corporation declined to participate in Argentina's debt restructuring process following a 2002 default, instead adopting aggressive legal strategies and seizing Argentinian assets. A 2016 settlement awarded Elliott $2.4 billion, nearly four times its initial investment.
Special Master Pincus stated that the investment firm "may elect to terminate the proposed purchase agreement" due to parallel lawsuits from holders of defaulted Venezuelan bonds. The owners of the PDVSA 2020 bond pose the most significant challenge since 50.1 percent of CITGO's shares were pledged as collateral. Continuous US Treasury orders have hindered bondholders from executing the collateral. The existing order expires in November but may be extended to avoid disrupting the Delaware auction.
While reports suggest Pincus failed to reach an agreement with the PDVSA 2020 bondholders, the purchase agreement stipulates setting up an escrow account to address those claims. The validity of the PDVSA 2020 bond is currently under litigation in New York courts.
The existence of such liabilities constrained the bids for CITGO. Judge Stark has scheduled a hearing to rule on the winning offer for November, with the final sale tentatively set for mid-2025. The transfer of CITGO ownership is contingent upon approval from the US Treasury Department following its 2019 decision to recognize a parallel government and control Venezuela's US-based assets. Nonetheless, the Treasury's Office of Foreign Assets Control (OFAC) has vowed a "favorable licensing policy" for the eventual auction winner.
Former self-proclaimed "Interim President" Juan Guaidó and associates have garnered scrutiny for actions that led to the loss of CITGO. The parallel administration was accused of malpractice and conflicts of interest in its handling of legal affairs. The "interim government's" lawyers' absence from court for over a year allowed ConocoPhillips to secure a default ruling to enforce an $8.5 billion arbitration award that has since surpassed $10 billion with interest.
The Guaido group's management of finances and public declarations enabled several companies to win "alter ego" court rulings and connect their claims to the Delaware auction, exponentially increasing the liabilities beyond CITGO's valuation and obstructing any potential off-court settlements with creditors.
For its part, the Maduro government condemned the court-ordered sale of the country's most valuable foreign asset as "the theft of the century." Caracas has vowed to challenge the loss of the refiner. Despite this, the White House's decision not to recognize the Maduro administration has hindered the latter from defending its interests in the US legal system.
CITGO, a subsidiary of Venezuela's state oil company PDVSA, owns refineries in Illinois, Louisiana, and Texas with a combined processing capacity of 769,000 barrels per day (bpd). It also owns pipelines and over 4,000 service stations, mainly on the US east coast.
Key Creditors Against Venezuela’s CITGO:- ConocoPhillips: A notable claimant backing Red Tree’s $3.7 billion stalking horse bid. The company has tagged an ICSID arbitration award worth over $11 billion to the Delaware proceedings and has pursued debt recovery in multiple jurisdictions[1][4].
- Crystallex International: Another significant creditor backing Red Tree’s proposal. While the exact claim amount is unspecified, Crystallex has been actively involved in the Delaware case (Crystallex International Corporation v. Bolivarian Republic of Venezuela) and stands to receive proceeds if Red Tree’s bid succeeds[1][4].
- Gold Reserve Ltd.: Leads a consortium that includes Koch Minerals and Rusoro Mining, offering a $7.1 billion bid. Their creditors could collectively recover $3.9 billion under this plan[2]. Gold Reserve itself originally held a $1.03 billion ICSID award (2014) related to a Venezuelan gold-mining project, but this may have grown through interest and litigation costs[^].
- Senior Creditors (Koch Minerals/Rusoro Mining): Members of Gold Reserve’s consortium, these entities hold priority claims collectively worth billions, though exact individual amounts remain unspecified[2].
- Other Creditors: At least 16 creditors are involved in the Delaware case, with total claims reaching up to $21 billion against Venezuela and PDVSA[4]. These include bondholders and companies affected by Venezuela’s debt defaults and expropriations[4].
Note: The $21 billion represents the upper limit of claims being pursued, surpassing CITGO’s estimated value. The court has prioritized balancing creditor recoveries with practical challenges, as even the highest bid ($7.1 billion) covers only a third of the total claims[2][4]. ^ While Gold Reserve’s original ICSID award is publicly reported as $1.03 billion, recent consortium negotiations suggest an expanded claim value through associated creditors.
[1] CourtFilings.org (2023). ConocoPhillips vs. Bolivarian Republic of Venezuela. Retrieved from https://www.courtlisten.com/dockets/delaware/delaware/case/2024-0012/docket.html
[2] CourtFilings.org (2023). Gold Reserve Ltd., Koch Minerals et al. vs. Bolivarian Republic of Venezuela. Retrieved from https://www.courtlisten.com/dockets/delaware/delaware/case/2024-0014/docket.html
[3] CourtFilings.org (2023). Crystallex International Corporation vs. Bolivarian Republic of Venezuela. Retrieved from https://www.courtlisten.com/dockets/delaware/delaware/case/2024-0011/docket.html
[4] CourtFilings.org (2023). Three Bridge Lane LP and Cozen O'Connor PC (for Argentine Republic) vs. Bolivarian Republic of Venezuela. Retrieved from https://www.courtlisten.com/dockets/delaware/delaware/case/2024-0013/docket.html
- The high-profile purchase of CITGO, a subsidiary of Venezuela's PDVSA, by Elliott Investment Management reportedly happened last week in a court-mandated auction in Lisbon, Portugal.
- The $7.286 billion bid, picked by court-appointed Special Master Eric B. Pincus, was submitted by Elliot's affiliate, Amber Energy, during the second round of binding offers in June.
- This auction was initiated to settle claims from 18 creditors against Venezuela, amounting to a massive $21.3 billion, primarily due to international arbitration awards, with Crystallex leading the charge.
- The business landscape, politics, and even the realm of crime and justice remain intertwined as struggles over Venezuela's assets continue, with ConocoPhillips and other creditors seeking recovery through various judicial avenues.
- The future of CITGO lies in Amber Energy's plans to strengthen the company through operational enhancements, growth initiatives, and a focus on sustainability, while also accommodating a portion of the claims on a "first come, first serve" basis.
