A US court monitoring the high-profile auction of shares in Citgo Petroleum’s parent company has allowed a 30-day bidding process that will begin on April 28, setting the stage for fierce competition among creditors and investors.
According to court documents cited by Reuters, a final selection hearing is scheduled on June 11, after the bidding process is completed.
The Delaware-based case, presided over by Judge Leonard Stark, follows the court’s approval of a $3.7 billion “stalking horse” proposal from Red Tree Investments, a subsidiary of hedge fund Contrarian Capital Management.
The offer establishes the minimum for competing bids during the auction, but it has prompted debate among other claimants.
Creditors challenge the stalking horse bid
Red Tree’s bid contains a contentious provision to pay up to $3 billion to holders of a defaulted 2020 Venezuelan bond, which has sparked widespread criticism from other stakeholders.
Some claim that the offer undervalues the asset, while others dispute the complexity and fairness of the accompanying transaction support agreement.
The bid has sparked a new round of legal and strategic manoeuvring among the 16 creditors who have stayed involved in the case for the past eight years.
These creditors are demanding around $21 billion in compensation for defaults and expropriations related to Venezuela.
However, Citgo’s estimated worth remains substantially lower—no more than $13 billion—resulting in a zero-sum struggle for limited proceeds.
Gold reserve and other bidders prepare counter-offers
Gold Reserve (GRZ.V), a creditor in the case that had submitted a $7.1 billion bid earlier this year which was not chosen as the starting offer, said it was “encouraged” by Judge Stark’s decision on the stalking horse bid.
“The order expressed reservations about Red Tree’s lower bid price and the implicit overvaluation placed on the transaction support agreement with the 2020 bondholders, to the detriment of the judgment creditors in the Citgo sale proceeding,” the company was quoted in the report.
Gold Reserve, along with its affiliate Rusoro (RML.V) and two Koch Industries entities, intends to re-enter the bidding process over the upcoming 30-day period.
Other bidders and the auction timeline
Vitol (VITOLV.UL), a worldwide commodities trader, was among the other firms that filed proposals earlier this year; however, it is unclear whether the firm would rejoin the competition in the next stage.
According to the court-approved calendar, competing offers will be presented and examined by a special court officer during the 30-day “topping” period, which begins April 28.
Before deciding on a winner in June, the court is anticipated to consider each bid’s financial and legal merits. The final hearing on the sale process is planned for July 22.
In October 2024, Citgo Petroleum’s creditors expressed serious worries over a potential court settlement with US hedge fund Elliott Investment Management.
The arrangement sought to transfer control of the Venezuelan-owned oil refinery to the hedge fund, but it was heavily criticised for potentially compelling the business to accept an undervalued bid.
Creditors claimed that the terms of the transaction could imperil Citgo’s financial viability and fail to meet the legal criteria needed under Delaware law.
Citgo’s future and Venezuela’s response
The auction results will eventually determine the fate of Citgo, one of Venezuela’s most valuable assets abroad.
As creditors prepare for a forced sale, Caracas has slammed the process as a “robbery” of public assets.
With an estimated auction value of $7 billion to $8 billion, far less than the $21 billion in claims, creditors face vigorous competition for limited proceeds.
Nonetheless, analysts believe that the court will favour higher-value bids, perhaps shifting momentum away from Red Tree and toward more lucrative, less complex proposals.
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