Venezuelan steelmaker Siderurgica del Turbio SA’s previous owners are responsible for paying debt taken on before the company was nationalized in 2010, Industry Minister Ricardo Menendez said today.
The South American country’s attorney general ruled on the matter, Menendez said on state television, after a trustee for bonds issued in 2006 by the Caracas-based steelmaker, known as Sidetur, said last week that they were in technical default.
“It’s simple,” Menendez said. “The one who generates the debt should pay it.”
Deutsche Bank Trust Company Americas, the trustee for Sidetur’s $75 million of outstanding bonds, said in a Jan. 30 letter to creditors that a technical default occurred because a reserve account maintained by the company wasn’t fully funded. The default created a fresh opportunity for bondholders to demand immediate repayment, according to the rules under which the securities were sold.
“It’s a bad sign for bondholders with Venezuelan risk,” Francisco Ghersi, a managing director at Knossos Asset Management, said today in an e-mailed response to questions. “It gives the impression that there is disorder among those responsible for managing the country’s debt. They should clear this up very soon.”
The securities, which Fitch Ratings cut to seven steps below investment grade in November, traded today at 84.5 cents on the dollar to yield 16.5 percent, according to prices compiled by Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
“It is like someone stealing your house -- and your bank account -- and then still expecting you to pay -- and be able to pay -- the mortgage payments so the usurpers don’t get repossessed and evicted,” Russ Dallen, the head trader at Caracas Capital Markets, said today in an e-mailed response to questions. Dallen said he owns some of the bonds.
Venezuelan President Hugo Chavez, who is being treated for an undisclosed type of cancer in Cuba, said last year that he approved funds to compensate Caracas-based Sivensa SACA, Sidetur’s former owner, for the nationalization. Phone messages left for Sivensa today weren’t immediately returned. No one at Venezuela’s Industry Ministry picked up the phone when called today for further comment.
Sivensa planned to buy back Sidetur’s debt once it receives compensation for the nationalized assets, Oswaldo Sahmkow, the finance director at the company, said in 2011. The company said in October that it hadn’t yet been compensated for the seizure.
Chavez has seized companies in the energy, food, metals, cement and banking industries since first taking office in 1999 as part of his plan to create a socialist country. His takeover of FertiNitro in October 2010 handed bond investors windfall profits the next year because of a clause requiring a payout above face value in the event of a nationalization.
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