A couple of rulings this week, one from the United States Supreme Court and another from a Delaware judge, set the stage for the permanent loss of CITGO, Venezuela’s most valuable overseas asset. The decisions favor Crystallex in its efforts to enforce a $1.4 billion judgment resulting from the expropriation of its assets in Venezuela by Hugo Chávez. Crystallex’s position could be likened to that of a first-past-the-post system: of all the creditors of Venezuela, and there are many, it is the first to achieve such rulings. To fully understand Crystallex’s position regarding CITGO, one should read the expert report by José Ignacio Hernández. Once, Hernández was batting for Crystallex. Imagine how absurd and contradictory his arguments might seem now when he is arguing on the opposite side before the Honorable Leonard P. Stark.
The dispute with Hernández is public: once it was discovered that Helsinge, Glencore, Trafigura, and others hired him for a fraud case involving PDVSA, his position became unsustainable, in our opinion. Juan Guaidó, the puppet who pretends to be the “interim president” of Venezuela, appointed Hernández as his legal advisor, tasked with representing that “interim presidency” in ongoing cases across various jurisdictions. Having previously defended Crystallex, Hernández is now attempting to block the rulings that favor Crystallex. Before the same Delaware judge. While he refuses to clarify the matter, it is almost certain that Hernández is behind Guaidó’s strategy in Switzerland in the criminal proceedings that PDVSA initiated against Helsinge, Glencore, Trafigura, etc. Hernández is also trying to “renegotiate” Venezuela’s debt of approximately $180 billion with various creditors.
The Crystallex vs. CITGO case illustrates the kind of mess Venezuela finds itself in. The legal expert of a plaintiff emerges as the defendant of a sovereign, guaranteed assets often aimed at resolving multi-billion dollar disputes, two legal teams of “presidents” from Venezuela fighting for control and ownership of sovereign assets in foreign courts…
Favorable rulings may look good on paper. In practice, the value of the sovereign asset portfolio is much lower than what is owed. Simply put, there isn’t enough value for everyone. More importantly, there is no indication that with chavismo in power, Venezuela will ever financially recover, or that Guaidó is close to replacing Maduro.
CITGO had already been compromised before the events of this week. Half (49.9%) of the chavismo pledged it to Rosneft for a $1.5 billion loan. The other 50.1% was put up as collateral for a PDVSA bond (2020). Guaidó initially ordered the payment of the bond’s interest, only to later repudiate, through Hernández, the legality of the bond issuance. Now, two rulings grant Crystallex the right to enforce its $1.4 billion judgment. How far will the value of that asset stretch?
There are other judgments against Venezuela/PDVSA. Some even larger (Conoco). Additionally, there are groups of creditors seriously considering going to battle with Venezuela. This site has news for them: no one, anywhere, is going to see anything remotely close to what is owed. The money is gone. There is no stash of gold left anywhere.
At the time of writing this article, PDVSA has about 14.7 million barrels of crude in its inventories. Venezuelan crude is trading below market value. Recent recapitalization contracts seen by this site indicate Brent at -$15 per barrel. The narrative that Venezuela has “the largest crude reserves in the world,” and thus an infinite capacity to extract oil from the ground, is more than useless, as no one is going to invest a cent in a narco-led petrostate amidst a surplus of oil with ever-declining prices.
Venezuela is a failed state. It is bankrupt and far beyond rescue under the current overlapping regimes. Just like CITGO. The Treasury must have the final say on whether Crystallex receives what it is due. If the recent decisions mean anything (Nynas), it is likely that Maduro will not contest the OFAC to grant the required license. However, we remain skeptical that Crystallex will obtain anything close to $1.4 billion.