A US federal judge has extended the deadline for bidding on Citgo Petroleum's parent company until June 2, following a significant New York court ruling that has reduced litigation risks surrounding Venezuela's most valuable overseas asset, Reuters reported.

Delaware Judge Leonard Stark granted the extension after lawyers representing Venezuela argued that recent legal developments warranted additional time for prospective buyers to refine their proposals. The decision affects the court-supervised auction of PDV Holding (PDVH), Citgo's indirect parent company, which has attracted interest from multiple creditor groups seeking to recover portions of the $20.6bn owed by Venezuela.

The Delaware case, initiated by Crystallex International, concerns the potential sale of Citgo, an indirectly owned asset of Venezuela, to satisfy creditors' claims. The auction centres on shares in PDVH, which indirectly owns Houston-based Citgo, the seventh-largest oil refiner in the US. The process stems from a 2018 attachment order obtained by Crystallex to satisfy a $1.2bn arbitral award related to a Venezuelan gold mining dispute.

The bidding extension also follows what Venezuela described as a "monumental" ruling by New York District Judge Jed Rakoff, who declined to order PDVH to pay $358mn in defaulted bonds.

Whilst Judge Rakoff confirmed PDVSA and its subsidiary's liability for the debt, the decision has cleared what bidders viewed as a significant cloud of uncertainty over the shares. The ruling prevents creditors from extending PDVSA’s liabilities to its American affiliate. 

The claims had been brought by Girard Street Holdings and G&A Strategic Investment, which had sought to classify PDVH as an “alter ego” of PDVSA, a move that would have exposed the subsidiary’s assets to enforcement actions linked to sovereign debt issued between 2016 and 2017. A detailed opinion is expected in the coming days.

The decision significantly bolsters PDVH’s legal position, curtailing the risk of asset seizures and offering some relief to Venezuela’s embattled oil sector as it attempts to navigate years of financial strain and international litigation. 

By rejecting the application of the alter ego doctrine, the court reinforces a legal boundary between PDVSA and its subsidiaries – one that could influence how future debt-related challenges against state-owned enterprises are assessed by US courts. 

The outcome may also improve market perceptions of PDVH’s stability, easing pressure from creditors and potentially reshaping risk calculations for investors with exposure to Venezuelan assets.

Energy trader Vitol, among the active bidders in the Delaware auction, stated that the New York decision "fundamentally alters the topping period dynamics," reducing risks that had constrained bid values.

Support for the deadline extension auction came from court-appointed special master Robert Pincus in Delaware, who noted that it "may lead to a more robust bidding process through the submission of new and improved topping bids."

The auction centres on shares in PDVH, which indirectly owns Houston-based Citgo, the seventh-largest oil refiner in the US. The process stems from a 2018 attachment order obtained by Crystallex International to satisfy a $1.2bn arbitral award related to a Venezuelan gold mining dispute.

Active bidding consortiums include groups led by affiliates of Contrarian Funds' Red Tree Investments, Gold Reserve, and commodity trader Vitol. Red Tree's $3.7bn proposal currently serves as the opening bid, approved in April.

The groups are reportedly securing financing whilst establishing "certainty of closure" – a key court requirement for deal feasibility.

One initial contender linked to Elliott Investment Management is unlikely to continue, reportedly due to legal exposure concerns.

The nearly seven-year legal saga has been complicated by overlapping litigation as creditors pursue claims in multiple jurisdictions. Special master Pincus previously warned that parallel New York litigation appeared designed to circumvent the Delaware sales process and disrupt court-ordered creditor priorities.

Crystallex had opposed the extension, calling Venezuela's request "the latest in a series of meritless attempts to delay the sale of the PDVH shares." However, the company's objections were overruled given the changed litigation landscape.

The auction represents a critical opportunity for Venezuela's creditors, though it is unlikely to fully resolve the country's extensive debt obligations. The complex proceedings have spanned multiple appeals and were delayed by US sanctions until the Biden administration authorised the sale in April 2023.

The Nicolás Maduro in Venezuela regime has condemned the auction as an unlawful seizure of sovereign property. However, the process continues under US court supervision, with a recommendation for the winning bid expected by June 11 and a final hearing scheduled for July 22.

The extended timeline allows bidders additional scope to respond to the evolving legal environment whilst potentially attracting new participants emboldened by reduced litigation risks.