February 27, 2018 / 10:36 PM / in 6 months

Mercuria leads investor group seeking to buy Citgo collateral: sources

(Reuters) - Energy and commodities trading firm Mercuria is leading a group of investors seeking U.S. government approval to buy the nearly 50 percent of collateral in refiner Citgo held by Russia’s Rosneft (ROSN.MM), two sources close to the deal said on Tuesday.

The investors’ move would prevent Moscow from seizing a portion of the ninth-largest U.S.-based refining company in the event of a debt default by its parent, state-run Petroleos de Venezuela (PDVSA) [PDVSA.UL]. Citgo [PDVSAC.UL], fully owned by PDVSA, operates a 749,000 barrel-per-day refining network.

Mercuria declined to comment.

The commodities firm has a long trading relationship with Citgo Petroleum that allows the U.S.-based refiner to acquire oil on preferential terms.

Those terms have been helping Citgo buy crude for its refineries since President Donald Trump’s administration last year imposed financial sanctions on Venezuela, PDVSA and its subsidiaries, limiting their access to long-term credit.

Rosneft also has been under U.S. sanctions since 2014.

Venezuela in 2016 gave Rosneft the 49.9-percent collateral in Citgo in return for a $1.5 billion loan. The remaining 50.1 percent of Citgo provides the collateral to holders of PDVSA’s 2020 bond.

Rosneft and PDVSA were negotiating a swap of the collateral for other assets to avoid complications stemming from the sanctions. But those talks do not seem to have advanced very far, sources said.

The investors applied for a license from the U.S. Treasury’s Office of Foreign Assets Control (OFAC) to assume the lien, according to a U.S. investor and documents seen by Reuters.

The request, submitted in early October, has received basic technical approval but the group has yet to receive an answer from the U.S. government, according to the source.

Reporting by Julia Payne in London and Alexandra Ulmer in Washington; Writing by Marianna Parraga; Editing by Lisa Shumaker

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