On Friday of last week, armed personnel from the Mexican Navy occupied the Ferrosur facilities in the Coatzacoalcos-Medias Aguas section, an approximate extension of 120 kilometers that were occupied by military personnel based on the decree published in the Official Gazette of the Federation (DOF) which orders the temporary and immediate occupation of the railway section by the Ferrocarril del Istmo de Tehuantepec SA de CV, a company with majority state participation.
The section and the occupied facilities belong to the Ferrosur company, which in turn is part of the Grupo México conglomerate, owned by the second wealthiest man in the country: Germán Larrea.
Short stretch, big hit
In reality, the section occupied by federal forces (a little-known scheme prior to an expropriation) is very short compared to the size of the railway concessions that Grupo México operates.
According to the company’s own figures derived from its most recent financial report, Grupo México had 11,137 kilometers of total rail network in the country. That is, the occupied-expropriated represents only 1.07 percent of the rail network of the transportation division of Grupo México.
In these terms, the tranche in question is almost insignificant, but several things called attention, which caused a fall of almost 30 billion pesos only on Friday in the capitalization value of the holding company, Grupo México, due to a stumble of practically 5 percent in the issuer’s share price on the Mexican Stock Exchange after learning of the government action.
1) Prior to the occupation-expropriation of the 120-kilometer railway section, magnate Germán Larrea met with President Andrés Manuel López Obrador, without any information being known in the sense that they planned to take away a small part of the business from Grupo México .
2) Obviously the company and the government could not have informed the public. However, on the same Friday, Grupo México issued a statement in which it said it was “surprised” by the action and reserved the right to take legal action.
3) If the company, and especially its owner, Germán Larrea, did know about it and was informed by the president at the meeting that they held just a few hours before the event, It is also a serious action on the part of the employer, since as a public company that is Grupo México, controller of its other companies, it has the obligation to inform the market, that is, the investing public, especially in the case of events as relevant as the one indicated. It was not so.
4) The operation also drew attention, with armed personnel from an institution generally focused on other types of tasks, showing inappropriate strategies and mechanisms for the occupation of a corporate or part of a corporate facility.
5) The initial scheme and the actions only call for doubt and uncertainty; We are talking about the occupation with military personnel of part of the facilities of a company, one of the largest and most important, through a mechanism that they called “occupation”, something very difficult to understand otherwise; in fact, the broader market on Friday considered it a de facto expropriation.
6) Taking over the facilities or a part of them (even if very small), by an armed commando of the Mexican Navy, of a company the size of Grupo México, listed on the stock market, which is an emporium that employs 30,000 Mexicans and that it is present in a large part of the economic areas of Mexico, is not a good sign, the majority of analysts and experts agreed last Friday and practically the entire weekend.
7) Over the weekend, the Secretary of the Interior, Adán Augusto López, contributed to the uncertainty and confusion by pointing out that the facilities were only occupied, but not expropriated, and that there were negotiations with Grupo México but that no agreement was reached .
Federal government expropriates 3 railway sections to Ferrosur, from Germán Larrea; company evaluates actions
The Banamex case
As you will recall, according to journalistic sources, Germán Larrea was virtually considered the new owner of Banamex, since it seems that he would have reached an agreement with Citigroup to buy the Mexican bank for an amount of between 7,000 and 8,000 million dollars.
But, above all, Germán Larrea had received the presidential approval, fulfilling the requirement that the bank would be “Mexicanized” as the new owner and the capital of national origin.
In fact, many speculations arose after the meeting between the two last week, even pointing out that the announcement of the sale of the bank to Grupo México, by Germán Larrea, would be imminent.
In light of the events of Friday, the uncertainty is total, there is no shortage of versions that indicate that the act of occupation-expropriation of a small part of the Grupo México facilities will lead Germán Larrea to abandon the talks with Citigroup.
Other versions even spoke of one concession for another; that is to say, the occupation-expropriation of the small railway section in exchange for the approval for the purchase of Banamex, in the end what more Mexican could there be than the next owner of Banamex is Grupo México.
We will not know, but we may soon have news, especially since the markets are already “in” the news and will surely be impacted positively or negatively.
Undoubtedly, an eventual exit of Grupo México or Germán Larrea from the negotiations for the purchase of Banamex would be bad news for the markets, even if it were temporary.
Germán Larrea is among the few Mexicans who can count on the necessary liquidity resources to buy a bank like Banamex.
In any case, what is related to Grupo México-Ferrosur should be clarified: although a government action of this size will hardly be changed. The point is that uncertainty is something that markets and the economy never like. It is not about 120 kilometers of railways supposedly linked to a work of “national security” For the efficient operation of the logistics platform, it is about legal certainty.
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