U.S. Energy Assets Used as Collateral for Rosneft Loans to PDVSA

On November 30, 2016, a Delaware Uniform Commercial Code (UCC) filing against Venezuelan state-owned oil company PDV Holding Inc. revealed that the company had secretly mortgaged key energy assets in the United States as collateral for a $1.5 billion loan issued by Russia’s state-owned oil company, Rosneft.  PDV Holding, a subsidiary of Venezuela’s Petroleos de Venezuela, S.A. (PDVSA), owns Citgo Holdings, which owns Citgo Petroleum Corporation.  Citgo Petroleum has refineries and pipelines in the United States.  Specifically, the company possess three refineries in Corpus Christi, Texas; Lemont, Illinois; and Lake Charles, Louisiana—the sixth largest refining facility in the United States.  Citgo’s American assets refine 749,000 barrels a day.

The UCC filing showed that Rosneft had provided a loan to the company citing 49.9% of Citgo assets as collateral.  In October 2016, a struggling PDVSA had used the remaining 50.1% of Citgo Holding as collateral against the restructuring of $2.8 billion of debt, which was to mature within the year.  The loan was extended into a new four-year amortizing bond, with the collateral hanging in the balance in the event of default.  The specific identities of the creditors involved in the 50.1% deal are not known at this time, but are worthy of scrutiny.

Rosneft in Venezuela

Rosneft in Venezuela

Rosneft has been involved in a number of strategically significant deals with PDVSA in recent years, despite (and perhaps because of) the latter’s financial distress.  In March 2016, credit rating agency Moody’s downgraded PDVSA from stable to negative.  The agency also lowered the oil company’s baseline credit assessment to caa3.  Economic instability in the Venezuelan economy and consequently PDVSA’s poor financial standing are widely acknowledged credit risks for international investors.  Nevertheless, Rosneft has been a consistent creditor to the company, now, with this latest mortgage, opening the possibility of translating this into a the acquisition of  this role into strategic U.S. assets.

Analysts point to a trend over the past several years of major Rosneft acquisitions elsewhere, including a previous example involving PDVSA, when, in 2010, former Venezuelan President Hugo Chavez sold 4 oil refineries in Germany to the Russian company for $1.6 billion, giving the Russian state-owned enterprise key assets in the European market.

Redd Intelligence uncovered the UCC filing and broke the news.

The chart to the right shows Rosneft’s growing investments in Venezuela over the last five years.