Holders of Venezuelan bond ask New York court to protect their rights

By Marianna Parraga

July 10 (Reuters) - Holders of a key bond defaulted by Venezuela's state oil company PDVSA asked a New York judge on Thursday to ensure they can claim compensation from proceeds expected in an auction of shares in the parent of Venezuela-owned U.S. refiner Citgo Petroleum.

The holders' case in New York about the validity of their claim against Venezuela has not been resolved, but if they secure an injunction in the meantime, they could ultimately block the transfer of shares in Citgo's parent PDV Holding to the auction's winner.

A $7.4 billion bid for PDV Holding submitted by a group led by a unit of miner Gold Reserve (GDRZF) was recommended last week as the auction's winner by a court officer overseeing the bidding round in Delaware.

The court-organized auction aims to pay back Venezuela's creditors after the South American country's debt defaults and expropriations. But contrary to some competing offers, the Gold Reserve (GDRZF) group's bid does not include an agreement to pay the bondholders.

The holders are getting ready to move with an injunction if the Gold Reserve (GDRZF) group's offer is ultimately approved in Delaware under the proposed terms.

"We don't want to interfere with the sale," Christopher Clark, who represents the holders, told Judge Katherine Polk Failla from the Southern District of New York, in a court hearing. "All we are trying to do is to protect our rights. Delaware is not the proper forum for that."

Federal Judge Leonard Stark must decide whether to approve the recommended bid in coming weeks. Stark had anticipated that the bondholders' opposition to the Gold Reserve (GDRZF) group's proposed transaction for Citgo's parent could lead to increased litigation in the 8-year case, which saw a failed first bidding round last year.

In late June, lawyers representing the holders told Polk Failla they would seek relief, including through an injunction, to preserve their status quo while the New York court decides on their case. The hearing on Thursday was to explain the planned injunction request. (Reporting by Marianna Parraga Editing by Marguerita Choy)