U.S. Court Decision on Citgo Shares Affects Rosneft

A U.S. federal court ordered the seizure of shares in Venezuelan-owned oil company Citgo, which will be sold to pay a $1.2 billion settlement to a Canadian mining company unless Caracas puts up a bond, AFP reports.

U.S. District Court Judge Leonard Stark said in an order issued Thursday that “if PDVSA wishes to prevent execution” of the sale, it must post a bond.

The judge grants Crystallex International Corp. the right to go after prized U.S. assets belonging to Venezuela, in a bid to get paid the award tied to the 2008 nationalization of its gold mining operations by Venezuela. It was another blow to the crisis-battered South American country, which depends on state oil company PDVSA, including Citgo.

The decision affects Russia’s state-owned oil enterprise Rosneft, as a nearly 50 percent stake in Citgo was used as collateral for a $1.5 billion loan from the oil company and the rest was used as collateral for government bonds which Rosneft holds.

This week, Rosneft has asked a U.S. federal court to establish “a robust appraisal and sale process” of Citgo shares following Canadian miner Crystallex’ win at court against PDVSA.

“Such a course of action is particularly appropriate under the circumstances given the multitude of parties and interests potentially affected by a sale of PdVH,” the company’s lawyers said in a letter sent to the court.

“PDVSA’s shares of Citgo are 100 percent encumbered,” the letter said.

Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued over the forced nationalization of its assets by the Hugo Chavez government. The miner now has the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of $1.2 billion.

PVDSA’s bonds represent 30 percent of Venezuela’s external debt, which is estimated to be around $150 billion.