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Venezuela Embargo Puts Citgo Bond Payment at Risk

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08/06/2019 | 04:50pm EDT

By Andrew Scurria

Venezuela's opposition leaders said the latest U.S. economic sanctions on its government shield state-owned refiner Citgo Petroleum Corp. from being seized, possibly allowing them to avoid more than $900 million in coming bond payments.

Venezuela's U.S.-backed opposition leader Juan Guaidó said on Twitter late Monday that the total embargo imposed by the Trump administration protects Citgo, a prime target for seizure among creditors seeking repayment.

The new sanctions put at risk an amortization payment coming due in October on $1.7 billion in bonds backed by a majority stake in Citgo. President Trump's executive order overrode a previous Treasury Department ruling that gave those bondholders permission to take over Citgo if they weren't paid, according to Jose Ignacio Hernandez, the opposition's attorney general.

The Treasury Department could still issue a license that would open up Citgo to seizure once again, said Russ Dallen, head of investment bank Caracas Capital Markets.

But Monday's executive order fulfilled a longstanding request from Mr. Guaidó's parallel administration, which took control of Citgo in February and has lobbied the Trump administration to protect the company from creditors. Citgo declined to comment.

As Venezuela's largest seizable asset in the U.S., Citgo is an obvious source of compensation for creditors that have gone unpaid during the country's lengthy economic meltdown. Citgo has considered filing for bankruptcy to sort out the competing claims on its assets from bondholders and multinational companies owed money by Venezuela.

Fearful of losing Citgo to foreclosure, the opposition had been careful to pay down bondholders with collateral rights over the company even as tens of billions of dollars in other sovereign and Petróleos de Venezuela SA, or PdVSA, debts are in default. Without the risk of losing Citgo, the opposition has less incentive to pay.

In an exchange with WSJ Pro Bankruptcy, the opposition's attorney general Mr. Hernandez said its parallel board of directors at state oil giant PdVSA would decide whether to make the October payment.

"In the middle of a unique political and economic crisis, any government will face problems to make this payment," he said.

The company's Gulf Coast oil refineries were key PdVSA customers until the White House imposed sanctions in January that shut down oil trading between the U.S. and Venezuela. Citgo has since stabilized, refinancing its debt and fending off an attempt by corporate directors loyal to President Nicolás Maduro to reclaim the company.

Yet the company's future has remained uncertain as creditors chase it through the U.S. court system to collect on claims against Venezuela. Crystallex International Corp. a defunct Canadian miner, has been seeking to auction off Venezuela's shares of Citgo to satisfy an arbitration judgment.

A federal appeals court last week authorized Crystallex to seize those shares, threatening to strip Citgo from the opposition's grasp. The ruling is subject to further appeals and hasn't taken effect.

Other judgment holders, including ConocoPhillips, Owens-Illinois Inc. and Rusoro Mining Ltd., have targeted Citgo, a Venezuelan asset since 1990 and a key piece of the U.S. energy infrastructure.

Citgo has said an auction of the company would put its debt into default, unnerve suppliers and jeopardize thousands of U.S. jobs.

Handing Citgo over to the opposition was part of Washington's strategy to funnel state assets away from Mr. Maduro, who has refused to cede power despite an international pressure campaign aimed at ending his socialist regime.

Monday's embargo marked a dramatic escalation of the White House strategy to oust him, freezing all state assets and prohibiting transactions with the regime unless specifically exempted. The move put Venezuela on a par with North Korea, Iran, Syria and Cuba, the only other countries currently under such stringent U.S. measures.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CONOCOPHILLIPS 1.42% 60.82 Delayed Quote.-2.45%
GOLD FIELDS LIMITED 3.81% 74.73 End-of-day quote.49.82%
ISRAEL CORPORATION LIMITED -0.50% 77150 Delayed Quote.-21.18%
LONDON BRENT OIL 0.14% 65 Delayed Quote.17.36%
OIL REFINERIES LTD -0.17% 180.7 Delayed Quote.0.84%
WTI 0.10% 58.79 Delayed Quote.27.93%
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