The U.S. government this week extended the term of a protection measure against Citgo creditors until July next year, Reuters has reported, noting the measure effectively bars creditors from taking shares in Citgo as repayment for a bond that matured on October 27 this year.
The bond was issued by Citgo’s parent company, Venezuela’s PDVSA, operating through a U.S.-based entity. Half of Citgo’s U.S. parent’s shares were used as collateral for the debt, sparking outrage among Venezuela’s opposition members, led by Juan Guaido, who tried to take control of the refiner last year. The attempt was unsuccessful because of U.S. sanctions against PDVSA.
Guaido’s opposition claimed the bond was “absolutely fraudulent”, issued without the approval of Venezuela’s parliament—the National Assembly—which was dominated by the opposition. Two months ago, a U.S. judge, however, ruled the bond was “valid and enforceable”, potentially opening the way to creditors to claim Citgo shares in compensation.
The ruling also favored a claim by Canadian miner Crystallex, which wanted to take Citgo ownership in lieu of payments by the Venezuelan regime of an arbitration award for the nationalization of the company’s Venezuelan assets by the Hugo Chavez government. The ruling’s implications remain only potential because of the U.S. sanctions against Venezuela.
Crystallex had wanted to seize majority ownership of the U.S. parent of Citgo, PDV Holdings and use this control to sell the company to receive its due $1.4 billion awarded by the arbitration court.
Venezuela has long argued that Citgo should be immune from the billions in debt that Venezuela has accrued on the grounds that they are two separate entities, but U.S. courts disagree, ruling that PDVSA and Citgo’s U.S.-based parent company PDV Holding did not show adequate separation from the Venezuelan government, which has accrued billions in debt with multiple parties.