Venezuela creditors eye oil assets in battle over unpaid debt
State-owned PDVSA and refiner Citgo are targets as court rulings prompt show of force
As Venezuela and its state-owned oil firm PDVSA lurch from crisis to crisis, defaulted creditors are jockeying for position to ensure they are among the first to receive cash when payday eventually comes
As Venezuela and its state-owned oil firm PDVSA lurch from crisis to crisis, defaulted creditors are jockeying for position to ensure they are among the first to receive cash when payday eventually comes.
The Opec country is essentially bankrupt and creditors are increasingly chasing its oil assets with their biggest target being Citgo, the Houston-based oil refiner that processes Venezuelan crude oil and is estimated to be worth roughly $4bn.
Next in their sights is seizing Venezuelan oil cargoes at sea, as US hedge fund Elliott Management did with an Argentine ship in 2012 after it won a US court ruling to collect on unpaid debts. Venezuela is reportedly transferring oil cargoes in safe harbours including Cuba to avoid such risks.
The shift in creditor strategy is a show of force by the private sector against the regime of President Nicolás Maduro, which is overdue on $5.7bn of debt payments.
Although Mr Maduro survived an assassination attempt this month, is wrestling with an economy wracked by hyperinflation, and faces a series of government sanctions by the US, Europe, Canada and Latin America’s biggest countries, he also appears to have sealed his political control over the country.
The latest win for creditors came last week, however, when Canadian mining company Crystallex won a key battle in its attempts to force Venezuela to pay $1.4bn in compensation for expropriation of a mining project.
A US judge accepted Crystallex’s argument that PDVSA is an “alter ego” of the Venezuelan state and that therefore the Canadian miner has the right to seize PDVSA assets in the US. The ruling could serve as a precedent.
“This judgment . . . is unambiguously negative for Venezuela, given its loss of an asset of significant value,” said Francisco Rodriguez, chief economist of Torino Capital, a boutique advisory. He added that “in all likelihood” the ruling would spur “creditors to attempt to pursue PDVSA assets”.
ConocoPhillips has already done just that. In April, after it won a $2bn arbitration award against PDVSA from the International Chamber of Commerce, the US oil major seized the company’s assets in the Caribbean.
The seizures left PDVSA without access to facilities that process almost a quarter of Venezuela’s oil exports. To avoid the risk of other assets being taken, PDVSA asked its customers to load oil from its anchored vessels acting as floating storage units, Reuters has reported.
Conoco’s fight for reimbursement, though, looks straightforward compared with that of Crystallex, which involves taking on PDVSA, rival bondholders and the Russian oil group Rosneft.
Two years ago, half of Citgo was pledged as security for more than $3bn of PDVSA bonds. The other half was then pledged as collateral against a $1.5bn loan from Rosneft. As Citgo is worth roughly $4bn, according to estimates by Torino Capital, a US investment bank, it may have little residual value left to meet Crystallex’s $1.4bn claim.
Such complications mean that while both the Crystallex and Conoco rulings are significant, they are unlikely to spark an immediate wholesale plunder of other PDVSA assets.
“The ruling is a win for Crystallex, no doubt. But I’m not convinced that it immediately . . . marks a tipping point,” said Robert Kahn, a professor at the American University and a former International Monetary Fund official.
Lawyers agree. “[The Crystallex ruling] doesn’t mean that every Republic of Venezuela bondholder can automatically assume that
PDVSA assets are available to them,” said Richard Cooper, senior partner at New York law firm Cleary Gottlieb Steen & Hamilton.
Venezuela, which owes $31bn of sovereign bonds and $28bn of PDVSA bonds, also owes billions of dollars to China and Russia, but its sole foreignexchange generating industry is in steep decline. Oil output has dropped below 1.3m barrels per day — back to 1947 levels, according to Caracas Capital.
Two years ago, half of Citgo was pledged as security for more than $3bn of PDVSA bonds
Venezuela’s oil minister and president of the Venezuelan state oil company PDVSA Manuel Quevedo (centre) at a news conference in Caracas earlier this month © Reuters