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Elliott affiliate wins Citgo share auction with $7 billion conditional offer

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  • Investment firm tops rival offers by CVR Energy, Gold Reserve
  • Bid combining cash, credit is subject to court case resolutions
  • Elliott’s interest in Citgo follows good results from stakes in Marathon Petroleum, Phillips 66

HOUSTON, Sept 27 (Reuters) – An affiliate of Elliott Investment Management on Friday was named the presumptive winner in a U.S. court auction of shares in a parent of oil refiner Citgo Petroleum with a bid that puts an up to $7.286 billion enterprise value on Venezuela-owned Citgo, according to a court filing.

A U.S. district court in Delaware is auctioning shares in Citgo parent PDV Holding to repay up to $21.3 billion in claims against Venezuela and state-oil firm PDVSA for expropriations and debt defaults. A second and final bidding round closed earlier this year, leading to negotiations on terms.
The offer includes a combination of cash and credit, people familiar with the matter said. It is subject to the resolution of claims by holders of defaulted Venezuela bonds pursuing the same assets, the court said.

U.S. court officer Robert Pincus said he chose Elliott unit Amber Energy as the successful bidder, but added that “the buyer may elect to terminate the proposed purchase agreement” if a proposed motion to block bondholder’s parallel lawsuits fails.

“We will prioritize operational excellence to lay a foundation for stability, strength, and long-term success,” said Amber Energy CEO Gregory Goff, who joined Exxon Mobil (XOM.N), opens new tab‘s board three years ago after retiring as Marathon Petroleum’s vice chairman in 2019.

Elliott declined to comment.

The investment firm’s pursuit of the seventh-largest U.S. oil refiner follows billions of dollars in gains from its stakes in refiners Marathon Petroleum (MPC.N), opens new tab and Phillips 66 (PSX.N), opens new tab.

Citgo last year earned $2 billion, its second-best annual performance. In the first six months of this year, it posted a profit of $385 million and ended the period with a liquidity of $3.8 billion.

Elliott submitted offers in the two bidding rounds, competing with rival bids from U.S. oil refiner CVR Energy (CVI.N), opens new tab and miner Gold Reserve (GRZ.V), opens new tab. Gold Reserve last week quit the bidding, citing delays and uncertainty in the process.

The $7.286 billion valuation of Citgo is almost identical to the highest offer received in the first bidding round, which Citgo’s lawyers called disappointing. The refining company was valued at between $11 billion and $13 billion as part of the court process.

The offer will cover only a portion of the 26 claims approved by the court, excluding any provisions for bondholders.

Among those that could cash proceeds if the Elliott affiliate’s offer is confirmed are Crystallex, Tidewater (TDW.N), opens new tab, ConocoPhillips (COP.N), opens new tab, O-I Glass (OI.N), opens new tab, Huntington Ingalls (HII.N), opens new tab, ACL Investments, Red Tree Investments and Rusoro Mining (RML.V), opens new tab.

TERMS CHALLENGED

The conditional nature of Elliott’s bid is stirring opposition from Venezuelan parties in the case because the judge initially said the offer selected would have to be binding and final.

“This action does not represent the end of the road or the definitive closure of the process,” said Citgo’s supervisory board in a release. “Even though we are facing a complex scenario, we must clearly say PDVSA still holds ownership over its U.S. subsidiaries and has legal means to protect its interests.”

Even though the court established a priority ranking, some bondholders including a group led by Gramercy Distressed Opportunity Fund have been pursuing their claims in separate court actions, threatening to derail the sales process that has been delayed five times.

Earlier on Friday, Pincus notified the judge he had ended talks with holders of PDVSA’s 2020 bonds without a resolution. The bonds are collateralized with Citgo equity, so the dispute can affect the proceeds available to creditors in the case.

Pincus did not reply to a request for comment. Thomas Laryea, an attorney representing the Venezuela Creditor Committee that includes holders of the 2020 bonds, declined to comment.

Venezuela’s oil minister Delcy Rodriguez this week said the auction represents a “blatant theft” of Venezuela’s assets, and recommended Russia and other nations not to hold assets in the United States or Europe.

Judge Stark plans to discuss next week a proposal to block the bondholders from resorting to other courts and trying to “jump the line” set by Delaware’s creditors list. The court has scheduled a Nov. 19 hearing to approve a sale.

Even if Stark approves the motion, the Gramercy-led group can challenge his decision in other courts.

The bondholders have good chances of escalating their cases, said Jose Ignacio Hernandez, a lawyer from consultancy Aurora Macro Strategies who has closely followed the court case.

“Resolving those disputes will add at least three more months to the sales process, making unlikely to have a closure by mid-November as proposed,” he said.

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Reporting by Marianna Parraga and Gary McWilliams in Houston; additional reporting by Marc Jones and David French in New York and Vladimir Soldatkin in Moscow; Editing by Andrea Ricci and Will Dunham

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Focused on energy-related sanctions, corruption and money laundering with 20 years of experience covering Latin America’s oil and gas industries. Born in Venezuela and based in Houston, she is author of the book “Oro Rojo” about Venezuela’s troubled state-run company PDVSA and Mom to three boys.





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