Billionaire mining tycoon German Larrea asked the government to compensate his Grupo Mexico company for a seized stretch of railway in the south of the country, President Andres Manuel Lopez Obrador said.
Larrea asked for 9.5 billion pesos ($531 million) for a 120 kilometer (75 miles) section of railway that the military seized on Friday, Lopez Obrador said during his morning press briefing. AMLO, as the president is known, said that a valuation process will determine what — if anything — should be paid to Grupo Mexico which operated the concession.
During a long explanation of what led him to sign the decree to seize the railway, AMLO said he discussed the issue with Larrea and explained the strategic importance of the rail line for his project to connect ports on either side of the Isthmus of Tehuantepec, a relatively narrow strip of land that separates the Pacific Ocean and Gulf of Mexico. They first spoke at a meeting with businessmen on May 17 and the following day in a private gathering that included Interior Minister Adan Augusto Lopez and Finance Minister Rogelio Ramirez de la O, he said.
In that second meeting, Larrea named the price for the rail line, which was deemed too high for a government concession, said AMLO.
“This stretch of concession has to be restored. But the rail, which belongs to the nation, will return to the domain of the nation, for national security and for the public interest,” he said. The move is “completely constitutional and legal.”
Grupo Mexico shares slid another 2.6% on Monday after falling 4.3% on Friday. Shares of the transportation unit have fallen nearly 7% since the decree was published. Inbursa, the Mexican bank owned by billionaire Carlos Slim, has a 17% stake in GMexico Transportes.
Larrea, who along with his family owns about 60% of the mining, transport and infrastructure holding, is worth about $29.2 billion, according to the Bloomberg Billionaires Index. The figure doesn’t yet take into account the declines in the publicly traded companies on Monday.
The move has added to concerns in the business community about government intervention into the economy. A day before the seizure, the government published a decree designating certain flagship public projects, including the Isthmus train line, of “national security and public interest,” a move that defied a Supreme Court decision.
The Mexican peso weakened 0.6% on Monday, posting the worst performance among major currencies tracked by Bloomberg. Part of the declines can be linked to the rail line seizure and the uncertainty it generates for investors, said Gabriela Siller, director of economic analysis at Grupo Financiero Base.
Larrea is also in advanced talks to purchase Citigroup Inc.’s Mexican retail bank. AMLO said the incident with the railway has “nothing to do with Banamex” and that he would support the purchase of the bank as long as it meets certain criteria including paying all appropriate taxes.
AMLO added that Grupo Mexico trains continue to operate, and that the armed forces were sent to the seized area to secure it against “sabotage.” On Sunday, the group said it was seeking an agreement with the government and continues to analyze what actions can be taken.
“If an agreement is not reached in the negotiation, the temporary occupation will become definitive, in prejudice to the company, its employees, customers, and the free market,” the firm said in the statement.