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Citigroup sells Venezuelan gold as a setback to President Maduro: Sources

CARACAS (Reuters) – Citigroup Inc. plans to sell several tons of gold pledged by the Venezuelan Central Bank with a $ 1.6 billion loan as collateral after the repurchase deadline expired this month. This fails President Nicolas Maduro's efforts to hold fast to the rapidly shrinking reserves of the country.

FILE PHOTO: A Citibank Sign at a Midtown Manhattan Bank Branch, New York, November 17, 2010. REUTERS / Mike Segar

The Maduro government has been using gold-swapped financial transactions since 2014 use their international reserves to access cash after the decline in oil revenues made it hard to obtain hard currency.

In the last two years, however, it has had difficulty collecting its securities.

According to the 2015 agreement with Citigroup's Citibank, Venezuela was required to repay the $ 1.1 billion loan on March 11, according to four sources familiar with the situation. The balance will be due next year.

Citibank plans to sell its guaranteed gold, with a market value of $ 1.358 billion, to reclaim the first installment of the loan and pay the excess of approximately $ 258 million into a bank account in New York, sources said ,

The ability of the Maduro government to repay the loans has been hampered by the difficult economic situation of the South American country and the financial sanctions of the United States and some European countries.

Most Western nations say that Maduro's re-election to a six-year term last year was compromised by fraud and recognized opposition leader Juan Guaido as the legitimate president of Venezuela.

Guaido relied on the Constitution of Venezuela to announce a provisional presidency in January. However, Maduro retains control of state institutions in Venezuela and is supported by the powerful military. He has branded Guaido as a US puppet.

With the support of Washington, Guaido's team has taken control of the US refinery subsidiary of the US oil company PDVSA. The attempt to negotiate a 120-day extension of the repurchase period for the security, however, was unsuccessful.

"Citibank has been told that there has been a Force Majeure event in Venezuela, so the reprieve has been necessary, but they have not granted it," said one source in Guido's team.

A Venezuelan government source familiar with the affair confirmed that the country's central bank was not transferring the money to Citibank this month.

Citigroup declined to comment. The Venezuelan central bank did not respond immediately to a request for information.

In a February report to the US Securities and Exchange Commission, Citibank said the Venezuelan central bank had agreed four years ago to sign a "substantial volume of gold" in March 2019 under a $ 1.6 billion contract. repurchase. Citibank said that after the transaction, they own the gold.

Guaido seeks to freeze bank accounts and gold from Venezuela abroad, much of which remains in the Bank of England. At the end of 2018, the central bank of Investment Bank Deutsche Bank AG paid approximately $ 700 million to recover ownership of a portion of the gold used as collateral for a loan.

Despite the central bank's request for repatriation, the bullion continued to be in custody with the Bank of England. In the light of this transaction, the sources indicated that the central bank had no incentive to repay Citibank. RENEGOTIATE DEBT

The Guajido team also started this month with a possible debt rescheduling to facilitate payments and stop hostile actions by creditors, said two sources that had participated in the discussion.

Meetings between members of the Guaido team of legal counsel in the United States included discussions on the early start of renegotiations not only with Venezuelan bondholders, but also with Chinese and Russian governments and corporations affected by a nationalization wave ,

"We want to treat the debt comprehensively. We expect it to be $ 200 billion, "said one source.

The Citgo refinery, Venezuela's most important asset abroad, is under review as it serves as a guarantee for the issuance of a PDVSA bond and a loan from the Russian oil company Rosneft.

Guaido consultants are also considering paying around $ 72 million in interest on PDVSA's 2020 bonds in the coming weeks to prevent creditors from cracking down on Citgo.

coverage by Corina Pons and Mayela Armas; Letter from Daniel Flynn; Edited by Lisa Shumaker

Our Standards: The Thomson Reuters Trust Principles.

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