Gold Reserve’s US$7.38 billion bid recommended as winner of Citgo parent auction

Citgo Petroleum headquarters in Houston.

A US$7.38 billion bid by a subsidiary of miner Gold Reserve has been selected as the preliminary winner of a U.S. court-organized auction of shares in the parent of Venezuela-owned U.S. refiner Citgo Petroleum, according to a document filed by the officer overseeing the sale process and a company release.

Proceeds from the auction of PDV Holding are expected to compensate at least a handful of the 15 creditors fighting since 2017 to recover nearly $19 billion in U.S. courts after Venezuela expropriated assets and defaulted on debt.

The bid by Gold Reserve’s subsidiary Dalinar Energy Corporation, which will now be evaluated by Delaware Judge Leonard Stark before a final decision, is higher than a $3.7 billion offer by Contrarian Funds’ Red Tree Investments, selected in March as starting bid, but its cash component seems lower than offers submitted by at least two rival consortia.

“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,” court officer Robert Pincus, who is overseeing the auction, said in his recommendation.

The bid relies on a combination of equity and debt financing, and is supported by Rusoro Mining, two units of U.S. conglomerate Koch and Germany’s Siemens Energy, Gold Reserve said in a statement. Dalinar had offered $7.1 billion for the shares earlier this year.

“Our bid satisfies creditors further down the waterfall than was ever contemplated by any prior bid since the inception of the Delaware sale process,” said Paul Rivett, Gold Reserve’s executive vice chairman.

New bidders emerged in the last mile of the auction of the parent of the seventh largest U.S. refiner, following court decisions in parallel legal cases that encouraged new and improved offers.

A group led by commodities house Vitol made a last-minute bid exceeding $10 billion, while a consortium led by private equity firm Black Lion Capital Advisors submitted an all-cash $8 billion bid, according to court filings and sources.

A total of 130 potential bidders were invited to participate in the “topping” period, following the selection of a starting bid in March, Pincus said.

According to Pincus’ filing, three consortia including Dalinar’s group and Red Tree submitted improved offers, while the Black Lion group made a fresh bid within a revised June deadline. An “alternative bidder,” whose name was not disclosed by the court, submitted an offer after the deadline.

“Bid A, bid B, and the Black Lion bid did not conform with the bid requirements and therefore were not qualified bids as of the revised topping period deadline,” he said.

Elliott Investment Management’s affiliate Amber Energy won a first bidding round last year, but its conditional $7.3 billion offer was rejected by most creditors, creating the need for a new round this year and a fresh set of rules to encourage competition in the complex auction.

A final hearing on the sale process’ results has been scheduled by the court for August 18 once creditors complete research and file any objections to the auction in coming weeks.

In a case first introduced by miner Crystallex in 2017 against Venezuela, PDV Holding was found liable for the country’s debt. The Delaware court has since then attempted to secure a deal to satisfy a total of 15 creditors lined up with claims for some $19 billion in compensation.

Houston-based refiner Citgo Petroleum, the crown jewel of Venezuela’s overseas assets, severed ties with PDVSA in 2019 following U.S. sanctions. An opposition-led Congress that year appointed a new board of directors for the refiner, which is now overseen by opposition-controlled supervising boards.

Venezuelan President Nicolas Maduro’s government has called the auction a robbery of sovereign property and criticized U.S. oil sanctions on the country, which have been in force in the last six years.

(Reporting by Shubham Kalia in Bengaluru and Marianna Parraga in Houston; Editing by Janane Venkatraman, Mrigank Dhaniwala and Susan Fenton)