By Marianna Parraga and Gary McWilliams
HOUSTON (Reuters) -Activist investor Elliott Investment Management on Friday was named the presumptive winner in a U.S. court auction of shares in a parent of oil refiner Citgo Petroleum with a bid that puts an up to $7.286 billion enterprise value on Venezuela-owned Citgo, according to a court filing on Friday.
A U.S. District 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 firm PDVSA for expropriations and debt defaults. A second and final bidding round closed earlier this year, leading to negotiations on terms.
Elliott’s offer includes a combination of cash and credit, people familiar with the matter said, and is subject to the resolution of claims by holders of defaulted Venezuela bonds pursuing the same assets, the court said.
U.S. court officer Robert Pincus said he chose Elliott unit Amber Energy as the successful bidder, but said the recommendation is subject to resolving claims by other parties. If Elliott withdraws its proposal, he would be able to consider other proposals. The court has to approve the bid.
Elliott declined to comment.
The investment firm’s pursuit of seventh-largest U.S. oil refiner Citgo follows billions of dollars in gains from its stakes in refiners Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX).
However, Elliott is not a refinery operator, a condition the court had said was preferable. As part of its array of investments, Elliott has been a holder of Venezuelan bonds.
Citgo last year earned $2 billion, the second-best annual performance. In the first six months of this year, it posted a profit of $385 million.
Elliott submitted offers in the two bidding rounds, competing with rival bids from U.S. oil refiner CVR Energy (NYSE:CVI) and miner Gold Reserve. Gold Reserve last week quit the bidding, citing delays and uncertainty in the sales process.
TERMS CHALLENGED
The conditional nature of Elliott’s bid is stirring opposition from Venezuela parties in the case, since the judge initially said the offer selected would have to be binding and final.
Even though the court established a priority ranking for claims, some bondholders including a group led by Gramercy Distressed Opportunity Fund have been pursuing their claims in separate court actions, threatening to derail the sales process that has been delayed five times.
Earlier on Friday, Pincus notified the judge he had ended talks with holders of PDVSA’s 2020 bonds without a resolution. The bonds are collateralized with Citgo equity, so the dispute can affect the proceeds available to creditors in the case.
Pincus did not reply to a request for comment.
Thomas Laryea, an attorney representing the Venezuela Creditor Committee that includes holders of the 2020 bonds, declined to comment.
U.S. Judge Leonard Stark has not confirmed the court officer’s selection. He has planned to discuss next week a proposal to block the bondholders from resorting to other courts and trying to “jump the line” set by Delaware’s creditors list. The court has scheduled a Nov. 19 hearing to approve a sale.
NOVEMBER CONCLUSION UNLIKELY
Even if Stark approves Elliott’s offer, the Gramercy-led group can challenge his decision, which would ultimately freeze any decision on the offer until the dispute is resolved, experts said.
The bondholders have good chances of escalating their cases, said Jose Ignacio Hernandez, a lawyer from consultancy Aurora Macro Strategies who has closely followed the court case.
“Resolving those disputes will add at least three more months to the sales process, making unlikely to have a closure by mid-November as proposed,” he said.
This post is originally published on INVESTING.
