Venezuela Poised to Lose Citgo in 2019 After Defaulting on Bond Payments

Venezuela's financial mismanagement in the oil industry continues, with experts predicting it will lose its most valuable international asset, Citgo, in 2019.

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Citgo, with its valuable refineries and service stations, is Venezuela’s largest international asset (Wikipedia).

“Venezuela is going to lose Citgo. It will be in 2019,” said Venezuelan economist Luis Oliveros, after learning that the South American country violated the terms of a multi-million dollar agreement with Canadian mining company Crystallex International Corp.

“It did not take long for that to happen. The bondholders will fight to keep that company. The default will eat that asset. Then they will come for the tankers,” Oliveros said.

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And so it is that once again Venezuela is on the verge of losing Citgo, its most valuable asset abroad, after violating an agreement with the Canadian mining company.

The Canadian company reactivated its lawsuit, alleging breach of contract, and now the South American country faces the possible collapse of a couple of agreements to the tune of USD $1.4 billion.

An article in the newspaper Panorama reveals that a Crystallex lawyer said that Venezuela violated the agreement it reached in November in order to resolve a protracted dispute stemming from the expropriation of a gold deposit.

Robert Weigel, attorney for Crystallex, said that Venezuela violated the agreement, because PDVSA continued to try to void a court order that allowed Crystallex to seize the shares of Citgo’s parent company.

But the Canadian mining company is not the only poised to collect Venezuela a huge sum from Venezuela, since the Nicolás Maduro regime also violated a USD $1.3 billion agreement reached in October with Vancouver’s Rusoro Mining.

Now both companies have sought orders from US courts to auction off Citgo’s parent company, which is indirectly owned by Venezuela through state oil-producer PDVSA.

Due to the current shortage of dollars and its serious economic crisis, Venezuela has defaulted on tens of billions of dollars in bond debt; nevertheless, it has endeavored to protect Citgo, its most valuable asset located outside the borders of Venezuela.

Last month, PDVSA made a payment of almost USD $1 billion to creditors with guarantee rights on Citgo, the only bonds in which Venezuela has kept up to date on payments.

What would it mean to lose Citgo?

Economist Luis Oliveros told the PanAm Post that losing Citgo would imply losing the ability to distribute Venezuelan crude in the United States, because this country is the main nation that pays in cash.

It would thus be a tough blow, particularly as the United States is currently the main buyer of Venezuelan crude.

PDV Holding Inc., owned by PDVSA, owns Citgo Holding Inc., which in turn owns Citgo Petroleum Corporation, which has three refineries and pipelines in the United States.

Citgo can refine 749,000 barrels per day and the Lake Charles refinery, in southwestern Louisiana, is the sixth largest refinery in the United States.

Citgo: the bullwark against default

Venezuela has defaulted on its debt obligations virtually everywhere. Many other creditors are also still waiting for their payments.

A report by the BBC revealed that legal and financial experts anticipate that in the event of a default, a complicated process of legal maneuvers will begin in Venezuela.

“Citgo has three refineries in the United States and these would be the main object of interest for the creditors,” said the experts.

In addition to the Louisiana refinery, it has two more in Corpus Christi, Texas and Lemont, Illinois.

“The most striking asset is the US-based refining and distribution company, Citgo, the sixth largest refinery in the country, with facilities in the states of Louisiana, Illinois and Texas and tens of thousands of service stations.”

But, above all, the economist Oliveros said that “the last one that comes to collect, will not be able to because all those affected by default of Venezuela are behind Citgo and the few assets that the country has abroad,” he concluded.

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