Dalinar Energy Corporation, a unit of Toronto-listed miner Gold Reserve, has been declared the provisional winner of a high-profile auction of PDV Holding, the US parent of Venezuela’s Citgo Petroleum, with an offer of $7.38 billion.
According to Reuters, the sale is part of a US court-led effort to pay creditors who were left without a cent after a history of nationalisations in Venezuela.
Dalinar’s proposal, if sanctioned by the court, could be sufficient to meet 11 of the 15 creditors with valid claims associated with Venezuelan defaults and expropriations, according to an officer appointed by the court, Robert Pincus.
Dalinar’s offer bested a $3.7 billion initial proposal made by Red Tree Investments, a Contrarian Funds affiliate, earlier this year.
Though the cash portion of Dalinar’s offer may be smaller than competing bids, it addresses a diverse host of creditors that includes major international companies like ConocoPhillips, Rusoro Mining, Crystallex, Koch Industries, Siemens, and OI Glass.
The offer would also allow Gold Reserve to collect on its $1.78 billion judgment over the expropriation of gold mining assets in Venezuela.
Court Officer cites the highest qualified offer
“Dalinar’s proposed sale transaction is approximately $3.576 billion higher than the stalking horse transaction and is the highest bid that meets the bid requirements,” Pincus wrote in a court filing from last month.
The project has stock and debt financing and is supported by several creditors, including two Koch firms, Siemens, and Rusoro.
Dalinar had earlier made a $7.1 billion bid, which was boosted in the last stages of the process.
Gold Reserve’s executive vice chairman, Paul Rivett, stated that the offer satisfies creditor claims further down the payment priority line than any previous bid since the Delaware court-led sale process began.
PDV Holding was ruled responsible in a case first filed by Crystallex in 2017, allowing additional creditors to seek recovery through US action.
Rival bids add late drama to Citgo sale
Intense interest in PDV Holding, which owns Houston-based Citgo Petroleum, the seventh-largest US refiner, was sparked when rulings in other instances of parallel litigation compelled numerous improved and last-minute bids.
Vitol, an oil trader, planned for a syndicate to submit an unsolicited bid of more than $10 billion soon before the deadline, while Black Lion Capital Advisors proposed a $8 billion all-cash offer.
However, in court records, those bids were stated not to have met the auction’s stringent criteria.
Some 130 potential bidders were then invited to submit improved bids throughout an “auction” period, which came after the initial bid was selected back in March.
Just three qualified consortia, Dalinar and Red Tree among them, delivered valid, updated bids in time, with Black Lion and an unnamed “alternative bidder” missing deadlines or not meeting essential terms.
Several, including the Black Lion bid, were not “qualified” bids as of the amended deadline, Pincus said, meaning they weren’t able to be evaluated for final recommendation.
Legal and political uncertainty remains
Dalinar’s bid excludes payment to holders of a crucial Venezuela bond backed by Citgo shares. That omission poses “a degree of risk,” according to Pincus, because those claims are still pending in a separate New York court action.
Adding to the complexity, the outcome of the auction will be determined not only by Delaware Judge Leonard Stark, who is overseeing the case, but also by the US Treasury Department, which must authorise any transfer of Citgo-related assets under Venezuela’s current sanctions.
So far, the Treasury has neglected to offer updated information about how it intends to proceed. A final court hearing on the auction results is scheduled for August 18, after creditors finish their due diligence and file any objections in the coming weeks.
Citgo is at the centre of a long-running legal battle
Citgo Petroleum has been a focal point in Venezuela’s long-running legal and financial dispute with its creditors.
Citgo, once a crucial asset of state oil corporation PDVSA, has been operating autonomously since 2019, when a US-backed opposition Congress established new supervisory boards in response to mounting sanctions on the Maduro regime.
Venezuelan President Nicolás Maduro has blasted the auction process as a theft of sovereign property and criticised the US sanctions, which have been in place for six years.
The Delaware court’s endeavour to resolve claims totalling up to $19 billion is one of the greatest sovereign debt enforcement actions in US history.
If Dalinar’s recommended bid is accepted, it will mark a significant breakthrough in a debate that has lasted over a decade.
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