New Venezuela Sanctions Protect Citgo, Encourage Debt Talks

OILMONSTER.COM- Venezuela’s opposition on Tuesday celebrated a sweeping U.S. sanctions order against the government of President Nicolas Maduro, saying the measure would protect Venezuela-owned U.S.-based refiner Citgo from seizure by creditors.

Three allies of opposition leader Juan Guaido also said the measure allowed for restructuring negotiations with bondholders, which had been prohibited under previous sanctions. That could be key to protecting Citgo, since half of state oil company PDVSA’s shares in the refiner were put up as collateral for its 2020 bond.

Washington on Monday announced a freeze on all Venezuelan government assets in the United States, escalating an economic and diplomatic pressure campaign aimed at removing the socialist president.

The move comes after Guaido asked the United States to issue an executive order protecting Citgo, which bondholders and other parties are eyeing for possible seizure as a way to receive compensation from Venezuela for unpaid debts.

“Today there is no possibility of losing Citgo,” Guaido, the leader of the opposition-controlled Congress, who in January invoked Venezuela’s constitution to assume an interim presidency, told reporters on Tuesday.

The United States and most Western nations have recognised Guaido as Venezuela’s legitimate leader, arguing Maduro’s 2018 re-election was illegitimate. Maduro calls Guaido a U.S.-backed puppet, and his foreign ministry said the new U.S. measure formalises a “blockade.”

Creditors that could lay claim to Citgo include companies like Canadian gold miner Crystallex suing for compensation for nationalisation of their assets as well as investors holding bonds issued by PDVSA.

An ad-hoc board of directors for PDVSA appointed by Guaido made a $71 million interest payment on the 2020 bond VE151299784= in May, but failure to make a $913 million payment due in October could pave the way for creditors to seize Citgo shares.

An exemption to the sanctions published by the Treasury Department on Tuesday authorized U.S. persons to engage in transactions with anyone appointed by Guaido to lead a Venezuelan state-owned entity. Two members of Guaido’s team, including his chief overseas legal representative, Jose Ignacio Hernandez, said that opened the door to talks with bondholders.

“PDVSA’s ad-hoc board is designing a strategy to resolve the 2020 bond, which includes sitting down to negotiate with bondholders,” Luis Pacheco, the chair of the ad-hoc board, told Reuters.

Citgo declined comment, while PDVSA did not immediately respond to a request for comment. A Treasury spokesman said the department “does not generally comment on fact-specific scenarios, including on matters related to debt renegotiation.”

Houston-based Citgo operates refineries in Texas, Louisiana and Illinois that can process up to 749,000 barrels of crude oil per day. It had relied on its parent in Venezuela for heavy crude supply before U.S. sanctions were introduced in January, and now imports mostly from Mexico and Colombia, according to U.S. Energy Department figures.

The asset freeze follows repeated rounds of sanctions against Maduro that have hampered Venezuela’s already collapsing socialist economy but failed to dislodge him, or convince his military allies to turn against him.

Courtesy: www.reuters.com