UPDATE 4-Venezuela to take over Gruma's local unit

* Government accused Gruma of refusing to sell flour

* Gruma shares sink, loss could reduce revenue by 10 pct

* Firm says will work with authorities to price assets (Adds Gruma comment on seeking compensation, background)

CARACAS/MEXICO CITY, May 13 (Reuters) - Venezuela decreed the takeover of a local operation of Mexican food-processor Gruma on Thursday as the country’s socialist government tightened its grip on food production amid shortages and soaring inflation.

Gruma’s stock sank as analysts estimated the loss of the local operation, Monaca, might cost the company up to 10 percent of its revenues.

President Hugo Chavez has nationalized large swathes of the economy of South America’s biggest oil exporter, including various food companies. (For key facts on the company, click here: [ID:nN13210790])

Venezuela is battling one of the world’s highest inflation rates after a devaluation of the bolivar currency in January inflated import prices.

Gruma, one of the world’s biggest corn flour producers, said on Thursday evening that it would work with local authorities to find a fair price for the seized assets.

“The Venezuelan government and GRUMA will initiate a bargaining period to define the scope of the expropriated assets, the price and form of payment,” the company said in a statement.

Gruma has a second unit in the country called Demaseca but it was not part of the action.

Shares of Gruma GRUMAB.MX fell 6.58 percent to 21.00 pesos. Its U.S. traded shares GMK.N lost 5.96 percent to $6.78.

A decree in the government’s Official Gazette said the takeover would include the production, processing and storage of wheat, corn, pasta, rice, oil, oats, seafoods and spices.

Citigroup said in a report that the decree was unclear and that the reference to corn suggested Gruma may also lose Demaseca, which runs corn flour operations.


The takeover was part of an official drive to guarantee food for Venezuelans named “Consolidation of the capacity of the socialist agro-industrial processing for the 21st century Venezuela,” the decree said.

Gruma, which is based in Monterrey, had said Venezuela was preparing to sanction it for refusing to sell flour in April at a time of national shortage -- an accusation Monaca denied.

The government said in December it was temporarily taking over Monaca after a banker that holds a minority stake was tied to a financial scandal.

“I expect that most investors have already assumed that these operations would be lost,” said Pedro Herrera, an analyst at HSBC in New York.

The devaluation of the bolivar had been reducing the importance of Gruma’s operations in Venezuela, from accounting for close to 20 percent of revenue in recent years to less than 10 percent in the first quarter of 2010.

Herrera has an “overweight” rating on Gruma and last week set a target price of 30.60 pesos for its Mexican shares and $10 for its U.S. shares, arguing that the market had been overreacting to potential losses in Venezuela.

“Once things clear and we know more, the current uncertainties of operating in the country will be mostly eliminated from the way people value the stock,” Herrera said.

Chavez, who has made a political career out of attacking Venezuela’s traditional elite, has recently seized land owned by top beer and food company Empresas Polar, taken over sugar mills and nationalized a French-owned supermarket chain. (Additional reporting by Patrick Rucker in Mexico City and Gabriela Lopez in Monterrey; Editing by Steve Orlofsky)