By Charlie Devereux
Bloomberg

CARACAS -- Venezuelan President Hugo Chavez approved funds to finalize the expropriation of Siderurgica del Turbio SA, a steel products company known as Sidetur.

Chavez said today he agreed a loan of $21 million from the off-budget development fund known as Fonden and 298 million bolivars ($69 million) from state banks to fund the nationalization. The company’s assets have a book value of 1.2 billion bolivars ($288 million), Oscar Sahmkow, finance director of Caracas-based Sivensa S.A.C.A., Sidetur’s parent company, said in December.

In October 2010 Chavez seized seven processing plants belonging to Sidetur, accusing it of inflating prices. Until February, Sidetur’s management had continued to operate the company as it waited to conclude compensation talks with the government. After that, Chavez appointed a temporary state-run board.

“I’m approving a credit from Fonden of $21 million and 298 million bolivars from the public banks to conclude the expropriation, payment and relaunch of Siderurgica Nacional, which we’re creating from what was the private company Sidetur,” Chavez said during a phone call broadcast on state television.

The price on Sidetur’s 10 percent bonds due in 2016 rose to 82 cents on the dollar today from 80 cents on June 15 and from 69.13 cents on Oct. 29, data compiled by Bloomberg show. The yield fell to 17.7 percent from 19.26 percent since October. Sidetur has about $80 million of 10 percent bonds outstanding.

Guarantee Clause

The bonds contain a clause that guarantee holders payment of 101 cents if there’s any change in company ownership. The steelmaker will buy back its debt once it receives compensation, Sahmkow said December 6.

“At this point, it isn’t clear who the funds are destined to pay - they owe owners, shareholders and bondholders, but the $90 million Chavez allotted is not enough to pay them all,” said Russell Dallen, head bond trader at Caracas Capital Markets in Miami. “Chavez does have a history of paying bondholders first and might be more inclined to let the shareholders - which include the family of former opposition presidential candidate Maria Corina Machado -- twist in the wind.”