CORRECTED-UPDATE 1-Citgo parent auction nears final stages as sale hearing kicks off

A long-awaited sale hearing expected to complete a U.S. court-organized auction of shares in the parent of Venezuela-owned U.S. refiner Citgo Petroleum began on Monday, with bidders and creditors locked in a bitter dispute over who should win. The Delaware court started hearing testimony from the involved parties, witnesses and experts in the four-day showdown before Judge Leonard Stark selects a final winner.

Another set of arguments could be presented in October if the court decides more time and evidence are needed. Judge Stark on Monday denied a motion to extend the hearing to consider a last-minute bid from Blue Water, and also denied Venezuela's request to suspend the proceeding over an alleged conflict of interest involving law firm Weil, Gotshal & Manges, which is advising the court in this case. At stake is the future of the seventh largest U.S. refiner, whose parent PDV Holding was found liable for the South American nation's debt, opening the door for a total of 15 expropriated companies and defaulted bondholders to pursue its assets.

"This sale hearing represents a significant milestone in an 18-year litigation effort that ConocoPhillips has been engaged in since its assets were expropriated in 2007 by (Venezuelan) President Hugo Chavez," Amy Wolf, a lawyer representing the oil company, the largest creditor in the case with more than $11 billion in claims, said during the hearing. In July, a court officer overseeing the process selected a subsidiary of Toronto-listed miner Gold Reserve as the auction's frontrunner.

But following a last-minute bidding war, officer Robert Pincus last month switched his recommendation to a $5.9 billion bid from Amber Energy, an affiliate of hedge fund Elliott Investment Management. The decision has unleashed objections and a motion to disqualify Amber's bid, which remains pending, amid a battle between companies seeking compensation for assets that were expropriated in Venezuela and holders of the nation's defaulted bonds.

Miner Crystallex, ConocoPhillips and an affiliate of bondholder Contrarian Funds told the court on Monday they support Amber's bid, while Venezuela, Gold Reserve and junior creditors objected to it. The hearing "will serve as the first stress test of whether the Amber bid can survive the full gauntlet of procedural, legal, and geopolitical risks," said lawyer Jose Ignacio Hernandez from consultancy Aurora Macro Strategies, in a report last week.

By including a $2.1 billion cash payment to holders of PDVSA's 2020 bonds, Amber's bid creates an opportunity to resolve a long-pending claim that is being heard in a separate New York court. However, Venezuela and a handful of creditors prefer to wait for the resolution of the New York case, where the validity of the bonds is in dispute, before anything is paid to the holders.

A court decision about that is crucial to determine how many of the 15 creditors lining up since 2017 in Delaware, who want to collectively cash up to $19 billion from auction proceeds, will end up getting compensation.

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