US judge delays Citgo bond arguments

A federal judge is delaying to late September a hearing to determine whether Venezuela has lost its US refining subsidiary to holders of defaulted bonds.

US Southern District of New York judge Katherine Polk pushed back oral arguments to give the US government more time to determine whether it would participate in a case brought by holders of Venezuelan bonds backed by a majority stake in Citgo. A controlling board appointed by the US-backed opposition government led by Venezuelan National Assembly leaderJuan Guaido, sued last year to have the bonds declared invalid.

The US government this week said agencies would need until 16 September to decide whether to file a statement of interest in the case. Polk delayed oral arguments scheduled for 12 August to 22 September.

"The court knows that there have been several delays already in this action and that the parties are eager for a resolution," Polk wrote today. "However, the court does not believe that it would be fruitful to hold oral argument without knowing the government's views, if any, on the application of the Act of State doctrine."

It was the second delay in the case this summer, and the second instance of the US government accepting an invitation to intervene on behalf of Guaido's opposition government weeks or months after requests for input. The judge's rescheduling does not change a US Treasury prohibition against executing any action related to the bonds until at least 20 October.

A board appointed by Venezuelan president Nicolas Maduro issued in 2016 an $3.4bn obligation backed by 50.1pc of shares in Citgo. The board did so without the approval of Venezuela's National Assembly. The legislative body declared the transaction illegal at the time. Bondholders were not paid $914mn in principal and interest due last October.

Bonds without the body's authorization are illegal under Venezuelan law, the US-basedCitgoboard said. But billions of dollars issued since 1990 under Venezuelan leaders recognized by the US government transacted without National Assembly approval, lenders said in filings to the court. Guaido-appointed Citgo chairwoman Luisa Palacios said in 2016 — nearly three years before her appointment — that the issuance would buy valuable time to navigate Venezuela's economic crisis.

Only in April 2019 did opposition leaders press that it violated the constitution in agambit to keep one of the only Venezuelan institutions the opposition controlled, the lenders argued.

Besides, the bondholders said, New York, not Venezuelan law governed the contracts.

Lenders and holders of international arbitration awards against Venezuela are wading through US courts in a race to the country's most valuable and accessible overseas assets. Bondholders with billions of dollars of senior debt may soon face off against companies such as Crystallex, which has persuaded the US District of Delaware, where Citgo and its holding companies incorporated, to entertain a forced sale of Citgo shares.

Venezuela's Maduro-aligned institutions meanwhile control Venezuela and have worked to remove Guaido's constitutional claim to power. The Supreme Court approved a rival, parallel leadership of the National Assembly in late May. Maduro appointed a new elections board, assuring progress toward fully removing Guaido from the head of the Assembly this year and eliminating a leadership claim recognized by dozens of western governments. Assembly elections are scheduled to be held on 6 December, but the opposition is divided over whether to participate in a process run by the Maduro-appointed electoral board.

By Elliott Blackburn