Credit under the American refineries
The Canadian mining company Crystallex filed a lawsuit against the Swiss trading company Rosneft Trading S.A. (Under the control of Rosneft), accusing it of participating in the scheme of "fraudulent transfer of assets" (fraudulent transfer under the laws of Delaware, where the lawsuit was initiated). In November 2016, Rosneft Trading received liens on the 49.9% stake in the US refineries operator Citgo, controlled by the Venezuelan oil company Petróleos de Venezuela S.A. (PDVSA). The shares might have covered the loan of $1.5 billion from Rosneft in favor of PDVSA, Crystallex claims in a lawsuit with reference to media reports. Crystallex seeks compensation from Venezuela at $1.4 billion by the decision of the international arbitration over the nationalization of gold mining project in 2011, and Citgo, whose cost analysts estimate at $3 billion, demands an asset that could be potentially recovered.
Respondents on the claim filed on January 4 to the Court of the District of Delaware (the copy obtained by RBC through the official database of the US court documents), are PDVSA, its subsidiary PDV Holding and Glas Americas - the collateral agent for the remaining 50.1%, which were also submitted to pledge (PDVSA has 100% of Citgo in total).
In November 2016, PDVSA encumbered 49.9% stake in the US operator of oil pipelines and refineries Citgo Holding to Swiss Rosneft Trading SA, as follows from the financing statement filed on Nov. 30, to the authorities Delaware from Norton Rose lawyers on behalf of Rosneft Trading (copy of the document published by Latin American Herald Tribune). The subsidiary of Rosneft received a lien in exchange for a loan to PDVSA, the loan amount would be $1.5 billion, according to one of the leading investigative journalists in Latin America, Steven Bodzin, who was the first to publish information on REDD Intelligence. PDVSA confirmed in a press release dated December 23, that it "had used the remaining 49,9% [Citgo] to attract new financing", without specifying from whom the funding had been received.
In favor of the loan version could also talk the data of the central bank of Venezuela on foreign exchange reserves: on November 30, they jumped by $891 million, the sharpest increase in nearly a year. "It is difficult to verify the information with so little official data, but it would be a logical explanation for the sudden jump in foreign exchange reserves," said Siobhan Morden, head of Latin American debt strategy at Nomura Securities Markets in New York (quoted by Bloomberg), in December. The amount received by the central bank may be the remnants of Rosneft's loan, as admitted the strategic adviser to hedge fund Venezuela Opportunity Fund, Russ Dallen.
The combined capacity of the three refineries owned by Citgo is 749 thousand barrels per day. The refinery in Lake Charles, Louisiana is the largest of them with capacity of 427.8 thousand barrels / day (sixth among the US refineries). Capacity of the refineries in Lemont (Illinois) and Corpus Christi (TX) is 176 thousand and 158 thousand Bbl. / Day, respectively. A distinctive feature of these refineries is the ability to process heavy sour crude, which accounts for 57% of their raw materials. Furthermore, Citgo's complete and partial property are the oil pipelines and terminals nationwide. At the end of 2013, the revenue of Citro Petroleum (controlled by Citgo Holding) amounted to $42 billion, profit - $1.8 billion, as follows from the materials of Delaware court. The company is not public, so there's little public information about its financial performance.
Earlier PDV Holding encumbered 50,1% of Citgo to other creditors of PDVSA, who had agreed to exchange $2.8 billion of bonds maturing in 2017 to $3.4 billion maturing in 2020, wrote the Latin American Herald Tribune.
According to Crystallex, the purpose of transactions, covered by 100% of Citgo, was to encumbered all of the assets of the American company, in order to protect PDVSA and PDVH from the claims of Crystallex and other creditors by the withdrawal of these assets outside the US jurisdiction, as follows from the claim. The Canadian company asked the court to recognize the encumberment of 49.9% of Citgo to Rosneft a "fraudulent transfer", issue a court decision canceling the bail, and to prohibit the possible further transmission of the right to bail from Rosneft to anyone else.
The deal of Rosneft with PDVSA could theoretically be the subject of an investigation by the US Foreign Investment Committee (CFIUS), said Dallen from Venezuela Opportunity Fund to RBC. CFIUS reviews all transactions in which the buyer is acting in the interests of foreign powers. However, the US regulators are unlikely to be involved, as Rosneft does not own 49.9% of Citgo: it is only secured on a possible loan.
But even if it comes to the transition of the collateral in ownership of Rosneft and the administration of Donald Trump will approve the transaction, Congress will likely block it, says Dalley. Such precedents occured before: in 2006, the legislators did not allow Dubai Ports World (DPW) to purchase the oldest British port operator P & O assets in the United States.
Among the potential obstacles to the transaction are the US sanctions against Rosneft and its CEO Igor Sechin, adds Dalla.
Rosneft can not become the owner of the Citgo stake while PDVSA will not declare a default on its obligations, explained Craig Pirrong, Professor of Finance from the University of Houston, to RBC. But even if that happens, Rosneft will not become the controlling shareholder of Citgo, since its share is less than 50%, the expert concludes. CFIUS will not check the transaction with Citgo, since in this case the stock won't be transferred to a foreign company from the US: it is already owned by the Venezuelan PDVSA, said Brandon Barnes, Bloomberg Intelligence Analyst, to RBC.
The representative of Rosneft, Alexander Terentiev, on Thursday, 5 January, did not answer RBC calls; the press service of Rosneft also did not respond to a written request. Press Secretary of Rosneft, Mikhail Leontiev, on Friday, January 6, said that the request from RBC only came at 19:15 MSK on Thursday. The Rosneft website on January 6 had a message that all the transactions of the company "with foreign partners are carried out in accordance with international law and those legal regimes under which those transactions are carried out." PDVSA's lawyers were unavailable for comment, reports The Wall Street Journal (there is no contact information for the media on the company's website).