Lawyers for Venezuelan state-owned oil company Petroleos de Venezuela argued to New York state’s highest court that the company’s bonds backed by a majority stake in refiner Citgo Petroleum Corp are not valid.
By Reuters – Luc Cohen
Apr 03, 2023
Venezuela’s opposition has controlled PDVSA’s U.S. assets including Citgo since 2019, due to sanctions on President Nicolás Maduro’s socialist government. The move in court is part of the opposition’s push to prevent creditors from taking over Houston-based Citgo, the eighth-largest U.S. refiner which last year processed some 811,000 barrels per day of crude oil.
Sanctions block bondholders from taking Citgo through April 20. While the U.S. government has renewed that measure several times when past deadlines approached, the most recent extension was for just three months, which could signal a policy shift.
PDVSA defaulted on bonds maturing in 2020, which were backed by a 50.1% stake in Citgo Holding Inc, a Delaware-registered entity through which PDVSA owns Citgo.
Venezuela’s opposition filed suit in Manhattan federal court, arguing the bonds were invalid because the approval of the South American country’s congress was needed to pledge Citgo as collateral. The National Assembly, controlled by the opposition when the bonds were issued in 2016, rejected the plan.
“This court should…reject the invitation to transform New York State…into a safe haven for unscrupulous authoritarian regimes to execute illegal transactions that violate their own constitutions,” lawyers for PDVSA wrote in a filing with the Albany-based New York State Court of Appeals.
PDVSA’s argument, filed on March 27, was not immediately made available on the court’s website.
The bondholders are due to reply by May 12. They have argued that the contention the bonds were illegal under Venezuelan law has no bearing in New York, where the bonds were issued.
U.S. District Judge Katherine Polk Failla initially sided with the bondholders. But the Manhattan-based 2nd U.S. Circuit Court of Appeals later said a section of New York state’s commercial code could be interpreted as implying that validity of a security, such as a bond, is determined by the local law of the jurisdiction where it is issued.
That court asked the New York State Court of Appeals to consider the question.
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Read More: Reuters – PDVSA’s Citgo-backed bonds are invalid, Venezuela opposition tells NY court
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