Crystallex Goes for the Jugular

Say what you will about president Maduro, he didn’t start the expropriation scheme. His predecessor did, and you better believe it’s time to pay.

There is nowhere to hide when it comes to paying your debts. Crystallex, the Canadian miner that had its stake in Las Cristinas mine (expropriated in 2008), has requested the U.S. District Court in Delaware to seize Citgo’s holding company shares belonging to PDVSA.

If the US court decides in favor of Crystallex, that company could sell the shares and collect a portion of the $1.4 billion award granted by the International Centre for Settlement of Investment Disputes (ICSID) in 2016.

The magic of the ICSID awards is that they are enforceable. Investors earn the right to seize assets outside the borders of the State in case of non-payment, making this tribunal an attractive dispute resolution mechanism. For example, the “vulture funds” in Argentina resulted in the holding of one of Argentina’s naval training vessels, the 103-meters-long sailing-ship ARA Libertad, docked in Ghana in 2012. An attempt in 2007 to seize Argentina’s Tanto 01, the presidential plane, deprived President Cristina Fernández of using it for official visits in territories where investors could attempt to collect their debts.

Countries may try to annul the award by blaming the procedure, but these are exceptions to the rule. Interestingly enough, Venezuela has had victories at the ICSID, with arbitration tribunals that have dismissed cases on 13 occasions for things like non-payment of the claimant or lack of jurisdiction. In the Crystallex case, Venezuela is exposed through Citgo, but this could escalate as high as buildings and bank accounts around the world.

Each day, Venezuela comes closer to the moment it cannot “correr la arruga” any longer.

There are caveats, though. First, unlike the Argentina case, Venezuela is not the direct owner of the shares PDVSA is. The Court would have to accept Crystallex’ alter ego theory, and pierce through PDV Holding’s corporate veil to grant the motion in their favor.

Secondly, CITGO Holding Inc.’s shares (owned by PDV Holding) are already pledged to Rosneft and the bondholders who agreed to PDVSA’s 2016 bond exchange.

You can bet that PDVSA, Rosneft, and the big bondholders are ready to fight this to the hilt, using all motions, appeals and stays at their disposal, dragging the case on for years, all the way to the US Supreme Court, as Argentina did.

And we shouldn’t forget that the real market value of Citgo is probably well below $1.4 billion. We are talking about a company with a billion-dollar-debt, whose shares are pledged as collateral for what pretty much amounts to junk bonds, and the equivalent of a payday loan.

However, even the longest trial is bound to end, and Crystallex has its fancy lawyers to play chess too. Each day, Venezuela comes closer to the moment it cannot “correr la arruga” any longer.

Venezuela is bound to pay a part of this debt, and all others resulting from cases at arbitral tribunals with enforceable awards. The lesson remains: do not take something from an investor, unless you can compensate the damage or they’ll take it from you by force.

Carlos Araujo

Carlos is from Valencia. He has a Master's in International Economic Policy, is interested in energy markets and trade, and makes amazing parrillas. He is also a columnist for