Complex bids may prolong Citgo auction assessment, sources indicate

By Marianna Parraga and Gary McWilliams

HOUSTON – A U.S. federal court is expected to extend the review period for bids submitted during the auction of shares in the parent company of Citgo Petroleum, which is owned by Venezuela. This extension will likely delay the resolution of a case that has been ongoing for seven years.

The court-led auction involves Citgo, the seventh-largest oil refiner in the U.S., and is intended to address claims amounting to $21.3 billion against Venezuela related to expropriations and debt defaults. The outcome of this process could potentially result in new ownership for Venezuela’s significant foreign asset.

Originally, the court aimed to complete the sale, following two rounds of bidding, by July 15—shortly before Venezuela’s presidential election scheduled for July 28, which the U.S. views as a pivotal moment in the country’s long-standing political crisis.

However, the bids received in the second round have turned out to be more intricate than anticipated, with many combining cash offers with credit bids from several of the 18 creditors approved by the court. Additionally, bidders were required to reveal whether their offers included plans to compensate holders of a bond secured by equity in the Citgo parent company, adding further complexity to the process.

Investment bankers are striving to create comparable evaluations for the bids, a process that may take longer than initially expected.

Citgo operates three refineries capable of processing up to 807,000 barrels of crude oil per day into various fuels and maintains a network of storage terminals and pipelines. In 2019, the company ended its association with its ultimate parent, the state-owned Venezuelan oil firm PDVSA.

Both President Nicolas Maduro’s administration and the political opposition have urged the U.S. government to postpone or suspend the auction in order to avoid influencing the election results.

In an earlier bidding round in January, the highest bid was recorded at $7.3 billion, falling short of the market valuation of between $11 billion and $13 billion for the refiner. Venezuelan representatives deemed the bids "disappointing" and have pushed the court to organize a third round if the second round results do not reflect a fair value for Citgo.

At least five investor groups submitted binding bids in the second round, with three obtaining financing commitments from banking institutions including JPMorgan and Morgan Stanley.

The court has not yet revealed the total number or value of bids submitted in this round.

Citgo, the boards overseeing the refiner, and a court-appointed officer in charge of the auction have not commented on the situation.

There are numerous reasons to approach the auction with caution, particularly considering the impending presidential election in Venezuela. There is speculation that a new government may honor its obligations and prefer not to see this asset sold off. As one informed individual suggested, the court could exercise a degree of prudence and patience to assess the unfolding situation.