By Marianna Parraga and Gary McWilliams
HOUSTON (Reuters) -A subsidiary of Elliott Investment Management was named the presumptive winner of a U.S. court auction of shares in a parent company of oil refiner Citgo Petroleum on Friday in a bid that gives a corporate value of up to $7.286 billion for Venezuela-owned Citgo , according to a court file.
A US 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 company PDVSA for expropriations and debt defaults. A second and final bid round closed earlier this year and led to negotiations on terms.
The offer includes a combination of cash and credit, people familiar with the matter said. It is subject to resolution of claims from holders of defaulted Venezuelan bonds pursuing the same assets, the court said.
U.S. District Court Officer Robert Pincus said he had selected Elliott unit Amber Energy as the successful bidder, but added that “the buyer may elect to terminate the proposed purchase agreement” as a proposed motion to block the bondholder’s parallel lawsuits failed.
“We will prioritize operational excellence to build a foundation for long-term stability, strength and success,” said Gregory Goff, CEO of Amber Energy, who joined ExxonMobil (NYSE:) on the board three years ago, after retiring as vice chairman of Marathon Petroleum (NYSE:) in 2019.
Elliott declined to comment.
The investment firm’s search for the seventh-largest U.S. oil refinery follows billions of dollars in profits from its stakes in the Marathon Petroleum and Phillips 66 (NYSE:) refineries.
Citgo earned $2 billion last year, 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 liquidity of $3.8 billion.
Elliott submitted bids in the two bidding rounds, competing with rival bids from US oil refiner CVR Energy (NYSE:) and miner Gold Reserve. Gold Reserve stopped bidding last week, citing delays and uncertainty in the process.
Citgo’s $7.286 billion valuation is nearly identical to the highest bid received in the first round of bidding, which Citgo’s lawyers called disappointing. The refining company was valued at between $11 billion and $13 billion as part of the legal proceedings.
The offer covers only part of the 26 claims approved by the court, excluding any provisions for bondholders.
Among those that could cash in on the proceeds if the Elliott affiliate’s bid is confirmed are Crystallex, Tidewater (NYSE:), ConocoPhillips (NYSE:), OI Glass (NYSE:), Huntington Ingalls (NYSE:), ACL Investments , Red Tree Investments and Rusoro Mining.
CONDITIONS CHALLENGED
The conditional nature of Elliott’s offer is drawing opposition from Venezuelan parties in the case, as the judge initially said the chosen offer must be binding and final.
“This action does not mean the end of the road or the final closure of the process,” Citgo’s supervisory board said in a press release. “Even though we are faced with a complex scenario, we must clearly state that PDVSA still owns its US subsidiaries and has legal means to protect its interests.”
Although the court established a priority ranking, some bondholders, including a group led by the Gramercy Distressed Opportunity Fund, have continued their claims in separate legal proceedings, threatening to derail the sale process, which has been postponed five times.
Earlier on Friday, Pincus informed the judge that he had ended talks with holders of PDVSA’s 2020 bonds without resolution. The bonds are backed by Citgo shares, so the dispute could impact the proceeds available to creditors in the case.
Pincus did not respond to a request for comment. Thomas Laryea, a lawyer representing the Venezuela Creditor Committee, which includes holders of the 2020 bonds, declined to comment.
Venezuelan Oil Minister Delcy Rodriguez said this week that the auction represents a “blatant theft” of Venezuelan assets, and advised Russia and other countries not to hold assets in the United States or Europe.
Judge Stark plans to discuss a proposal next week to prevent bondholders from resorting to other courts and trying to “cross the line” from Delaware’s creditor list. The court has scheduled a hearing for Nov. 19 to approve the sale.
Even if Stark approves the motion, the Gramercy-led group could challenge his decision in other courts.
The bondholders have good chances to escalate their case, said Jose Ignacio Hernandez, a lawyer at consulting firm Aurora Macro Strategies, who has been closely following the lawsuit.
“Resolving these disputes will extend the sales process by at least three months, making it unlikely that a closing will occur in mid-November as proposed,” he said.
