Venezuelan opposition asks Trump to shield Citgo

Venezuela's shadow government is appealing to the White House to issue an executive order aimed at protecting US refiner Citgo from falling into the hands of a leading creditor.

The petition is a last-ditch effort by the putative interim government of Juan Guaido to keep defunct Canadian mining company Crystallex, owned by US hedge fund Tenor Capital Management, from acting on a 29 July US appeals court decision. That ruling ratified the plaintiff's argument that Citgo is an alter ego of the Venezuelan government, opening the door for an auction to fully satisfy its $1.4bn claim.

"Citgo is not lost," said Alejandro Grisanti, a member of the Guaido-appointed "ad hoc" administrative board in exile of Venezuela's national oil company PdV, the parent firm of Citgo. "Monday's announcement is a clear setback, but there are still many legal, political and licensing, etc. resources that can be applied."

"An executive order from President Trump has been requested to protect the country's assets on American soil. ‘For now' this has not been granted because it is understood that the sanctions protect the Venezuelan assets", he said.

The exception are PdV 2020 bondholders who already have a US government license, he said.

In a lengthy statement this afternoon the Guaido-led government said it is pursuing legal appeals, while asserting that Crystallex cannot immediately take action on the US court ruling because the assets are protected by US sanctions.

The outlook for overturning the ruling or taking it to the Supreme Court looks dim. "There is no chance in the world the case will be taken up in court again," a financial sector executive who has followed the case closely told Argus. "The opposition's arguments were bad and they have no Plan B."

There was no immediate US government comment on the possibility of issuing an executive order. A senior US administration official told Argus that the White House would rather stay out of the fray, but it still needs time to decide.

"As with the Chevron decision, there are sharp differences of opinion between those who want to focus on regime change versus those who are concerned with the economic interests of US corporations," the official said.

Citgo is a major corporation and the US arguably does have interests in preserving it, the official said, adding that among the time-buying options is for Citgo to file for bankruptcy.

According to a November 2018 academic paper issued by Lee Buchheit and Mitu Gulati referencing the Iraqi debt crisis and parallels with Venezuela, "the Executive Branch of the U.S. Government has the legal power to facilitate a foreign sovereign debt restructuring in cases where an orderly resolution of the sovereign's debt difficulties is in the national security and foreign policy interests of the United States."

Buchheit was named as the opposition's debt adviser in May 2019.

Crystallex is among a handful of companies that won international arbitration cases stemming from Venezuelan government asset seizures, but have not been able to fully collect the designated compensation from Caracas. Around $800mn is left to pay on the Crystallex claim after Venezuela made partial payments amounting to around $400mn.

A lucrative target

Citgo, the fifth-largest US refiner with 750,000 b/d of capacity, is Venezuela's most valuable overseas asset and a legacy of the Opec country's 1980s overseas drive to ensure commercial outlets for its heavy oil. The company has been the target of Venezuela's myriad creditors for years.

The government of President Nicolas Maduro, whom the US and some 50 other western countries no longer recognize as head of state, regularly tapped Citgo for dividends. In 2016, PdV issued a bond swap secured by 50.1pc of the shares in Citgo's Delaware-based parent company. The holders of the resulting PdV 2020 bonds are lobbying to stop Crystallex from auctioning Citgo and to keep the refiner in Venezuelan state hands in anticipation of a comprehensive debt restructuring involving all creditors.

The other 49.9pc of Citgo's shares are collateral on oil-backed credit issued to Venezuela by Russia's state-controlled Rosneft.

Venezuela's exiled technocrats maneuvered in US courts and the Washington Beltway to retain Citgo since shortly after Guaido declared his interim presidency in January. In mid-February, Guaido named "ad hoc" administrative boards to PdV and its US subsidiaries to protect the asset. The move was overshadowed a week later by a botched US-backed aid campaign and a stillborn 30 April military uprising in support of Guaido.

In May, the US-backed opposition took a gamble by paying $72mn in interest on the PdV 2020 bond, arguing that the Maduro government would have defaulted because of US sanctions. Up to that point, the PdV 2020s stood out as the only Venezuelan bond that was still current. The funds for the opposition payment came from PdV's frozen US accounts released by the US Treasury.

Guaido's advisers are seeking US Treasury sanctions clearance to negotiate a delay in paying $842mn in principal on the PdV 2020 bonds due in October. By then, Crystallex could move to auction Citgo, unless the US government steps in to temporarily halt the sale. In the same month of October, the White House will decide whether Chevron gets another extension on its waiver to operate in Venezuela.

In a sidebar to the crisis, the opposition statement asserted that Jose Ignacio Hernandez, Guaido's ad hoc attorney general, had recused himself from the Crystallex case as he had testified on behalf of the company before he joined the exile administration.

The Citgo case is unfolding just as US election season gets into full swing, but for now the Venezuelan cause has fallen into the margins of US politics. An opposition-led campaign for protected status for Venezuelan migrants passed the US House of Representatives this month but was not taken up by the Senate before its recess period.