PDVSA must cede Citgo stake after bond default

WASHINGTON (AFP) – In a blow to Venezuela’s opposition leader, a United States (US) court ruled on Friday that creditors are entitled to seize a controlling share of Citgo after state oil company PDVSA defaulted on its debt payments.

However, a US Treasury rule in effect since late last year shields Citgo, a US-based unit of PDVSA, from being sold off at least until January.

Venezuela’s embattled President Nicolas Maduro issued so-called 2020 bonds in October 2016 to refinance other bonds that the crisis-ridden, oil-producing nation was unable to pay.

But the bonds included as collateral 50.1 per cent of US-based Citgo, and creditors MUFG Union Bank and GLAS Americas sought to take control of the shares when Caracas failed to make payments.

Opposition leader Juan Guaido, the national assembly speaker widely recognised as the country’s legitimate leader, and his team have been trying to work with creditors to resolve the issue of PDVSA’s debt payments.

Guaido’s team gained control of Citgo last year.

PDVSA argued in court that the 2020 bonds were not valid because they violated Venezuelan law by not winning approval from the National Assembly.

However, the New York judge ruled against that petition.

“The Court declares that the 2020 Notes and the Governing Documents are valid and enforceable; that a default occurred under the terms of the Indenture; that defendants are permitted to exercise the remedies for default set forth in the Indenture and the Pledge Agreement,” Judge Katherine Polk Failla said in her ruling.

But the US Treasury in October 2019 altered the sanctions against Caracas to block any transaction involving Citgo shares used to service the debt without a specific exemption.

The new rule will remain in effect through January 19, 2021, Treasury’s Office of Foreign Assets Control said.

In a statement, Guaido’s office called Friday’s ruling unfair and said it will considering filing an appeal.

It said the ruling is a “direct consequence of the irresponsible debt policy” of the Maduro government. The issuing of the 2020 bonds, the office said, was “absolutely fraudulent”.

Oil-rich Venezuela’s economy is crumbling under the rule of leftist Maduro and millions fled the country. The US imposed punishing sanctions on the government to choke off access to cash from oil exports.