(Bloomberg) -- Venezuela’s state-owned oil company is objecting to the bidding process for the court-ordered sale in July of a unit, PDV Holding, that owns the US-based refiner Citgo Petroleum.

Lawyers for Petroleos de Venezuela SA argued in a Delaware court filing Wednesday that a special master’s proposed instructions for taking bids next month “improperly advantage” investors who hold a defaulted PDVSA 2020 bond that is backed by a controlling stake in a subsidiary of PDV Holding, which owns the refiner. 

PDVSA said a separate court fight has yet to determine the extent of claims by holders of the defaulted bond that matured in 2020. The special master’s process assumes that those holders will get some of the PDV Holding proceeds, which could discourage or interfere with the bidding process, the lawyers said.

“The use of such funds to pay holders of the PDVSA 2020 notes would violate this Court’s orders, and would fail to satisfy the Special Master’s obligation to ‘maximize’ the sale price of any assets to be sold,” the lawyers said.

The PDVSA bonds were issued in 2016 by the government of Nicolas Maduro, who faces US sanctions intended to force him hold free and fair elections. Opposition leader Juan Guaido — who in 2019 was recognized by the US as the legitimate leader of Venezuela — withheld a payment on the bonds that year, saying they were invalid because they were sold without the approval of the National Assembly. 

PDVSA itself remains in the hands of the government in Caracas, but it’s represented in US courts by an ad-hoc board appointed by the Guaido-led opposition, which has been fighting to protect Citgo from being seized, without much success.

Read More: Venezuela Law Determines If PDVSA Bonds Valid, NY Court Says

PDVSA’s ad-hoc board has expressed a willingness to negotiate with key creditors, but no agreements have been reached. Meanwhile, Maduro has blamed the opposition for allowing what he calls the “theft” of PDVSA’s most important overseas asset. US sanctions currently protect Citgo from seizure, so a license is required for the sale to go through.

According to the court filing, a bidding process that contemplates any payments or the “improper diversion of sales proceeds” to satisfy the PDVSA 2020 bondholders would reduce the value received by other creditors.  

The second round of bids for PDV Holding is scheduled for June 11, with the sale set for completion the following month. Almost 20 creditors have obtained attachment judgments that allow them to collect their claims from the proceeds of the sale. 

The PDVSA 2020 notes have long been a matter of contention in New York courts, with Venezuela’s opposition claiming the bonds are not valid. The dispute has moved all the way to the state’s top court, which decided in February that the validity of the bonds, and their pledge, must now be determined by a federal court under Venezuelan law. 

PDVSA lawyers are also asking for the auction schedule to be modified to “accommodate concerns” over the bonds’ litigation process.

On Thursday, US District Judge Leonard Stark, who is overseeing the sale of PDV Holding shares, ordered the special master to respond to PDVSA’s objection no later that May 13, with a potential hearing on the matter scheduled for May 17.

©2024 Bloomberg L.P.