By Ryan Dezember and Alison Sider | The Wall Street Journal
A sale process for Venezuela’s Citgo Petroleum Corp. has been called off, and the U.S.-based oil refiner instead plans a debt sale that would raise funds for the cash-strapped country.
The auction was scrapped in recent days after several suitors submitted bids in early December, people familiar with the matter said. Citgo is now planning to raise $2.5 billion in debt instead, one of the people said.
The sales process could be restarted later. Corporate auctions are rare in the immediate aftermath of such recapitalization deals, however, and the added debt could make the company less attractive to suitors too.
Citgo, which operates three U.S. oil refineries and related assets from its Houston headquarters, was expected to fetch between $8 billion and $11 billion should it have been sold, analysts and people close to the sales process have said.
But running a successful auction of a state-owned enterprise amid plunging oil prices was an uncertain prospect to begin with, and such deals usually take many months to be inked and closed. The debt sale, on the other hand, could serve as a more immediate source of cash for the country.
The roughly 50% plunge in oil prices since this summer has pressured oil-rich Venezuela, which had already been facing cash-flow problems that have forced it to cut back on imports and caused shortages of some basic goods. Venezuela needs to sell oil at $117.50 a barrel to balance its budget, one of the highest prices among the world’s petrostates, according to analysts at Deutsche Bank.
Citgo is owned by Petróleos de Venezuela SA, or PdVSA, the state-owned oil company that is the country’s main source of cash.
Considered a crown jewel of PdVSA, Citgo had revenue of $42.3 billion and earnings before interest, taxes, depreciation and amortization—a cash-flow measure known as Ebitda—of $1.8 billion in 2013, according to July debt-offering documents.
It owns refineries in Lake Charles, La., Corpus Christi, Texas, and Lemont, Ill., which have a combined processing capacity of about 760,000 barrels a day. The company also owns valuable networks of pipelines and fuel-distribution terminals in the eastern U.S.
There are about 5,600 Citgo-branded gas stations in the U.S. that are independently owned and operated and weren’t part of the sales process.
Citgo has tapped Deutsche Bank to sell the new debt through a term loan and high-yield bonds that would allow the refiner to pay a dividend to its owners, according to the person familiar with the matter.
Such a payout would be the company’s second in the last year after Citgo in July sold $650 million of bonds in part to pay its owner a $300 million dividend.
The proposed new debt deals were earlier reported by S&P Capital IQ LCD, a data provider.
The scuttling of the auction ends a monthslong process that was fraught with uncertainty over Venezuela’s commitment and ability to sell the refiner at an acceptable price.
Investment bank Lazard was enlisted last year to shop Citgo, which had flagged a potential deal in a bond disclosure in July. The auction continued in December despite signals from Caracas that cast doubt on its intentions. In October, for instance, Finance Minister Rodolfo Marco told a Venezuelan newspaper that, “the sale of Citgo is discarded and the president already asserted it.”
The auction drew interest from U.S. refiners Marathon Petroleum Corp. , HollyFrontier Corp. and Valero Energy Corp. , as well as private-equity firms TPG and Riverstone Holdings LLC., which teamed up to bid, according to people familiar with the process.
U.S. refiners have flourished in recent years as abundant crude flowed from domestic shale formations. The recent dive in oil prices has had a mixed impact on them. While fuel demand is expected to increase from drivers taking advantage of the lowest gasoline prices in years, U.S. and international oil prices have moved closer together, which has chipped away at U.S. refiners’ advantage over foreign competitors.
—Kejal Vyas contributed to this article.
Write to Ryan Dezember at [email protected] and Alison Sider at [email protected]
Bron: WallStreetJornal