By Marianna Parraga
HOUSTON (Reuters) -Lawyers representing holders of a defaulted Venezuelan bond and some bidders that participated in a U.S. auction of shares in the parent of Venezuela-owned refiner Citgo Petroleum are getting ready to object to the auction’s recommended outcome, three sources close to the preparations said.
The challenge to the $7.4 billion offer by a group led by a unit of miner Gold Reserve could again derail the sale of Venezuela’s priced foreign asset, which has been put on the auction block to pay creditors who lost billions to the South American country’s expropriations and defaults.
Proceeds from the court-organized auction of PDV Holding are expected to compensate up to 15 creditors fighting since 2017 to recover nearly $19 billion in U.S. courts.
A court officer overseeing the latest bidding round, the second organized to auction the parent of Houston-based Citgo Petroleum after a failed round last year, last week recommended an offer by Gold Reserve’s subsidiary Dalinar Energy Corporation to Delaware Judge Leonard Stark.
If approved, the Gold Reserve group’s bid would cover 11 of the creditors, including its own $1.18 billion claim for the expropriation of mining assets in Venezuela.
Contrary to other bids, however, Dalinar’s offer did not include an agreement to pay holders of a key defaulted Venezuelan bond collateralized with Citgo equity, which is expected to be the main reason for objections, the sources said.
The sources added that lack of clarity about the evaluation criteria also is worrying some bidders and creditors.
Gold Reserve and lawyers representing the holders did not immediately reply to requests for comment.
BONDHOLDERS IN OR OUT?
A pact with the bondholders is seen by some participants as essential to clear the way for a transfer of the shares to the winning consortium, while others say the holders first need to win in a New York court, where they are fighting since 2019 to have their claim enforced.
Stark will receive objections to the recommended bid through July 9. Any competing bidder can also disclose its offer’s terms to challenge the winner. A final hearing on the sales process is scheduled for August 18.
In parallel, Judge Katherine Polk Failla from the Southern District of New York will hold a hearing on July 10 where the bondholders will seek relief, including through an injunction, to preserve their claim, they said.
The Gold Reserve group’s proposed transaction in Delaware “would violate the 2020 noteholders’ rights,” they told the New York court in a letter late last month. “The transaction is plainly designed to evade the pledge agreement, and to diminish the value of the collateral by transferring proceeds outside the reach of the 2020 noteholders.”
Another creditor in the Delaware auction, Huntington Ingalls, told the court on Monday that Dalinar’s failure to include a settlement with the bondholders, coupled with recent court action in New York “highlight execution risks associated with the transaction structure.”
A $7.3 billion offer by an affiliate of hedge fund Elliott Investment Management was rejected last year by most creditors, creating the need for a new bidding round this year.
(Reporting by Marianna Parraga; Editing by Richard Valdmanis, Mark Porter and Marguerita Choy)
