Judge Rules In Favor Of PDVSA In Citgo Bond Dispute

A U.S. judge ruled that bonds issued by Venezuela’s PDVSA were “valid and enforceable”, putting a spoke in the wheels of Venezuelan opposition plans to take control of the state energy company’s most prized asset: U.S. refiner Citgo.

According to a Reuters report citing court documents, the ruling came in response to a lawsuit filed against PDVSA by the opposition led by Juan Guaido last year. The lawsuit claimed the bonds were “absolutely fraudulent” and were issued without first getting the approval of Venezuela’s National Assembly, which is under opposition control.

What makes the bonds special is that they are backed by 50 percent of the shares PDVSA holds in Citgo, meaning that now, after the court ruling, creditors hypothetically have access to them. The access, however, is only hypothetical: as Reuters notes, Washington’s sanctions against the Venezuelan government basically protect the ownership of Citgo from claimants seeking compensation from Venezuelan.

One such claimant is Canadian miner Crystallex. After winning a $1.4-billion arbitration case against the government in Caracas and PDVSA, the company tried to enforce it by seizing the shares of Citgo. However, it was prevented from doing so by the U.S. government, which asked the judge presiding over the Crystallex case not to grant Crystallex the right to sell the shares of PDV Holdings because such a move would harm U.S. foreign policy and national security interests. 

The bond that is backed by the Citgo shares matures on October 27. PDVSA has already defaulted on it before because of sanctions and later, when the opposition was given formal control of Citgo by the United States, because of a lack of funds to make the payments. The U.S. Department of Treasury has blocked all attempts of claimants for PDVSA assets from taking hold of Citgo, but things may change if the judge on the Crystallex case responds to the company’s request to put the shares of Citgo’s parent company up for sale in January.

By Irina Slav for Oilprice.com

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