US investors are seeking to acquire Russia's Rosneft lien in Citgo

Global Stock Markets

A group of U.S. investors is seeking Washington’s approval to acquire the nearly 50 percent collateral in U.S. refiner Citgo held by Russia’s largest state-owned energy firm Rosneft, one of the investors said. 

The move would prevent Moscow from seizing a large part of the U.S. refiner in the event of a full-blown default by its current owner, Venezuelan state oil company PDVSA. Texas-based Citgo operates a 749,000 barrel per day refining network in the United States. 

With Venezuela’s economy devastated by five years of recession, President Nicolas Maduro’s socialist government has increasingly turned to ally Russia for the cash and credit it needs to survive – offering prized state-owned oil assets in return. 

Rosneft has snapped up some coveted oil fields in the OPEC nation, giving it growing control over Venezuelan crude exports and a stronger foothold in energy markets across the Americas. 

Venezuela handed Rosneft ROSN.MM the 49.9 percent collateral in Citgo PDVSAC.UL in return for a $1.5 billion loan two years ago. The remaining 50.1 percent of shares in Citgo is collateral to holders of PDVSA’s 2020 bond. 

A steady decline in oil output, Venezuela’s main source of hard currency, has contributed to making the country chronically late on its bond payments in recent months. 

The Russian state oil company has been under U.S. sanctions put in place in 2014 to punish Moscow for aggression in Ukraine. Some U.S. senators have warned those sanctions could be violated should Russia take a stake in Citgo. 

Amid the outcry, Rosneft and PDVSA PDVSA.UL were negotiating swapping the collateral to avoid complications stemming from the sanctions. The talks do not appear to have prospered. 

Some Caracas-based oil sources said cash-strapped PDVSA was unable to offer anything attractive enough to Rosneft in return. 

In the meantime, the group of U.S. investors has applied for a license from the U.S. Treasury’s Office of Foreign Assets Control (OFAC) to assume the lien, according to the U.S. investor and documents 

The investor asked to remain anonymous to avoid compromising a potential deal. 

The request to OFAC, submitted in early October, has received basic technical approval but the group has yet to receive an answer from the Trump administration. 

Under the plan, no new debt would be issued. The investors would repay the outstanding loan balance and require that Rosneft terminate its lien and assign the loan to the new investors.