Bonds News

Citgo Petroleum cash builds, with dividends to parent frozen

HOUSTON, Sept 3 (Reuters) - Citgo Petroleum Corp, the U.S. refining arm of Venezuela’s state oil company, is accumulating hundreds of millions of dollars in cash it may not be able to pay out as dividends for at least a year, according to a new report by ratings firm S&P Global.

The refiner had $1.36 billion in cash at June 30 and should generate another $1.4 billion in funds from operations over the next 12 months, the report said. S&P last week raised Citgo’s stand-alone credit profile to BB from BB-minus, reflecting its stronger liquidity.

A Citgo spokeswoman was unavailable for immediate comment.

Some Venezuelan politicians were expecting Citgo, as the county’s largest foreign asset, to help finance Congress chief Juan Guaido’s interim government. The United States and most Western countries have recognized Guaido as Venezuela’s legitimate leader, although President Nicolas Maduro retains control of state-run Petroleos de Venezuela, S.A., known as PDVSA, and the nation’s military.

“I wouldn’t expect any dividend in the next year,” Kimberly Yarborough, S&P Global analyst, said, citing U.S. sanctions prohibiting financial deals with PDVSA and Citgo bond covenants restricting dividends while its net leverage, or net debt divided by pre-tax earnings, remains above two.

She does not expect the net leverage to fall below that level in the next year. Citgo recently released earnings that showed its second-quarter net income fell to $122 million from $255 million a year earlier on weaker refining margins and higher costs. (Reporting by Gary McWilliams Editing by Leslie Adler)