By Luc Cohen and Marianna Parraga
NEW YORK (Reuters) – A U.S. judge upheld the validity of Venezuelan state oil company PDVSA’s 2020 bonds on Thursday, prompting the temporary suspension of a separate auction for shares in the parent of Venezuela-owned U.S. refiner Citgo.
The bonds are secured by a majority stake in Citgo, which is ultimately owned by Caracas-headquartered PDVSA. The company defaulted on the bonds in 2019, putting the refiner at risk of seizure by creditors.
Bondholders and companies that were expropriated in Venezuela have clashed for years in U.S. courts in pursuit of the country’s overseas assets, especially Houston-based refiner Citgo Petroleum, valued at some $13 billion.
Venezuela defaulted on those and other bonds issued by the country and PDVSA. Several companies whose Venezuelan assets were expropriated by the government of late President Hugo Chavez are seeking to seize the country’s overseas assets, after winning arbitration cases.
After Washington sanctioned PDVSA in 2019 as part of its push to oust Venezuelan President Nicolas Maduro, Citgo severed ties with PDVSA and its control was taken over by Venezuela’s political opposition.
The opposition has been seeking to protect Citgo and other assets from creditors and companies seeking redress for defaulted debt or expropriated assets. The opposition had argued that the 2020 bonds were not properly issued under Venezuelan law.
On Thursday, U.S. District Judge Katherine Polk Failla in Manhattan ruled that the bonds were indeed properly issued. She had previously declared the bonds valid in 2020, but an appeals court later ordered further review.
After Failla’s ruling, a separate auction for shares in Citgo’s parent company before U.S. District Judge Leonard Stark in Delaware was suspended briefly to allow the court to review the impact of the New York judge’s decision.
The auction, in which 15 companies and bondholders are pursuing Citgo’s assets, is expected to determine the future of the seventh largest U.S. oil refiner. Bidders include a subsidiary of miner Gold Reserve and Amber Energy, an affiliate of Elliott Investment Management.
Lawyers defending Venezuela had said earlier this week in Stark’s courtroom that they could appeal if the 2020 bonds’ validity was reaffirmed. After Failla’s ruling, boards supervising Citgo set up an urgent meeting with their lawyers to plan action, a source close to the preparations said.
Sale proceedings before Stark are in their fourth day. The judge has not yet made key decisions on pending procedural issues or confirmed the auction’s winner.
(Reporting by Luc Cohen in New York and Marianna Parraga in Houston; Editing by Chizu Nomiyama and Andrea Ricci)
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