Gold Reserve, Vitol battle for Citgo's parent before sale hearing

By Marianna Parraga

HOUSTON, Aug 11 (Reuters) - Subsidiaries of miner Gold Reserve GRZ.V and commodities trader Vitol VITOLV.UL are nearing the finish line in a fiercely contested court-organized auction that will determine control of Venezuela-owned refiner Citgo Petroleum, according to two sources with knowledge of the process and court filings.

A court officer overseeing the bidding round last month recommended a $7.4-billion offer by a group led by a unit of Bermuda-based Gold Reserve GRZ.V as the auction's winner, out of a total of five bids submitted, including one by a Vitol subsidiary. Delaware Judge Leonard Stark is expected to choose the winner after a final sale hearing on August 18.

The decision will determine control of the crown jewel of Venezuela's overseas assets, the seventh-largest U.S. refinery.

Despite Gold Reserve's leadership status, its bid faces objections from various parties in the case and holders of a Venezuelan bond, some of whom the Vitol unit is seeking to strike a deal with, in a move that could shake up the auction again.

Following his recommendation, court officer Robert Pincus last week told the court that a competing bid by a company he did not identify was on the table, but it had not so far met the criteria to be considered superior to the Gold Reserve group's offer. The bid he was referring to was made by the Vitol subsidiary, according to the sources, who spoke on the condition of anonymity because they were not authorized to speak publicly.

His disclosure was the latest twist in a complex court process, initiated by miner Crystallex against Venezuela in 2017. Over a dozen additional companies hit by defaults in Venezuela or whose assets were expropriated by the state are pursuing proceeds from the auction.

Gold Reserve on Monday asked the court to proceed to the final sale hearing as scheduled and warned that any competing offer, including a non-cash consideration, would be rejected by the company, which is also a creditor in the case trying to recover $1.18 billion from the expropriation of its assets.

Vitol and Gold Reserve declined to comment.

HOT COMPETITION

Gold Reserve's frontrunner status in the auction of Citgo's parent PDV Holding could be threatened if the Vitol unit succeeds in securing a payment agreement with holders of the PDVSA 2020 bond, collateralized with Citgo equity, sources close to the talks said.

Vitol's push follows objections by bidders and creditors, ranging from mining and oil companies whose Venezuelan assets were expropriated to holders of defaulted notes, which have flooded the court in recent weeks opposing some terms of the bid by Gold Reserve's subsidiary Dalinar Energy, especially its lack of an agreement to pay the bondholders.

The Vitol subsidiary's improved offer includes a purchase price of $8.45 billion for the PDV Holding shares and intends to make a separate payment to the bondholders, according to its bid, submitted to the court with the bidder's name redacted.

The $8.45 billion it is offering would cover the claims of 13 of a total of 15 creditors registered to claim proceeds, versus the 11 creditors expected to be covered by the Gold Reserve group's bid. But because the Vitol subsidiary's bid was not entirely disclosed, it remains unclear if it includes non-cash considerations.

"We intend to finance the transaction entirely with cash on hand and existing or new intracompany credit facilities," the company told the court in its offer.

The Vitol subsidiary also told the court that it was in discussions with the 2020 bondholders. Pincus last week confirmed that talks with various parties were ongoing, but at the time of his submission on Thursday, no documentation of any such agreements had been received.

Pincus did not say if a deadline had been set for the Vitol unit to provide the required agreements, but the clock is ticking for the judge to stick to his proposed calendar without additional delays.

A procedural hearing is scheduled for August 13, and a final hearing marked as the last step before a decision by Judge Stark on the winner remains set for August 18.