After hearing, US judge decides on bid starting price in Citgo parent sale
In the coming days, a U.S. Court is expected to confirm and reject a $3.7billion offer made by an affiliate of Contrarian Funds. The offer was intended to set a floor price for a second round of bidding for shares in Citgo Petroleum's parent company.
Citgo, America's seventh-largest refiner, was the subject of a Thursday hearing at which creditors made their case. PDV Holding is auctioned off to cover the up to $21 Billion owed to Venezuela and PDVSA, its state-owned oil company.
The auction is being overseen by Robert Pincus who recommended Red Tree Investments last month. This has sparked a fight among the 16 creditors left in the eight-year long court case to compensate companies and bondholders in Venezuela for defaults on debts and expropriations.
Crystallex, a miner and Conoco Phillips an oil producer are among those who support the bid. They would receive proceeds if Red Tree wins the auction. The creditors who are below them have rejected the bid, claiming it was too low and complicated.
Delaware Judge Leonard Stark, in a document filed earlier this week, said he was "inclined to accept Pincus’ recommendation" due to its certainty of closure.
Stark listened Thursday to the creditors who, last year, rejected an even higher bid of $7.3 billion by a hedge fund affiliate Elliott Investment Management because of payment limitations.
At the hearing, creditors and Venezuelan lawyers said that starting with a bid so low would make it hard to reach Citgo's target of $7 billion to 8 billion dollars.
Red Tree's agreement with Citgo, Citgo's ultimate parent company, PDVSA in Caracas, to pay bond holders as part of the'stalking-horse' bid that sets the baseline price of this auction, is a sticking point.
This pact would remove an important obstacle from the auction since the payment of the bonds would be needed to release the collateral for Citgo's equity. This would however reduce the auction proceeds for creditors by as much as $3 billion.
Some creditors say that the complexity of Red Tree's offer could make it difficult to compare other offers within the 30-day period following the judge's decision to select the stalking-horse bid.
One of the attorneys representing Gold Reserve stated in the hearing that "the selection of the Red Tree's bid will frustrate the viability of a topping period" for rival offers.
Pincus did not recommend the $7.1 billion offer from a consortium including a Gold Reserve affiliate and units of U.S. conglomerate Koch, because Pincus was unsure about whether or not it would close.
Gold Reserve's attorneys are disputing Pincus argument. The group proposed to create a company which would borrow money, and then merge with Citgo Petroleum after the closing.
A counsel for Pincus stated that the court hopes for "robust competition" and noted that price would be a major determining factor for a successful bid.
(source: Reuters)
