Mexico takes over part of Grupo Mexico railway, shares fall

By Valentine Hilaire and Noe Torres

MEXICO CITY (Reuters) – The Mexican Navy on Friday took over a section of railway in southern Mexico operated by a unit of Grupo Mexico , and shares in the mining and infrastructure company fell by more than 4% after the expropriation.

Calling the move “surprising”, the transport unit Grupo Mexico Transportes said the Navy had occupied its facilities at the Coatzacoalcos-Medias Aguas section at 6 a.m.(1200 GMT), and that it was weighing up its options.

Earlier, Mexican President Andres Manuel Lopez Obrador’s government issued a decree ordering a “temporary” takeover of around 120 kilometers (75 miles) of the firm’s network in the area due to its importance to a major infrastructure project.

Known as the Inter-Oceanic Corridor, the project centers on modernizing the rail link between Mexico’s Pacific and Gulf coasts on the Isthmus of Tehuantepec to create a trade route the government hopes will compete with the Panama Canal.

Grupo Mexico Transportes will keep providing services under supervision of the armed forces, it said.

The section “expropriated” is about 1.1% of the 11,137 km run by Grupo Mexico’s transport division, analysts at brokerage Vector said in a client note. The unit generated 20.3% of the parent company’s revenues in the last 12 months, they said.

Grupo Mexico, owned by tycoon German Larrea, has been closing in on the acquisition of U.S. Citigroup Inc (NYSE:)’s retail banking operations in Mexico.

The government decree declared the section was of “public utility”, citing an expropriation law stating such measures could only be taken in exchange for compensation to the affected party.

A day earlier, Mexico’s Supreme Court struck down a government order declaring key infrastructure projects matters of national security. The court said the measure violated freedom of access to information rights. Hours later, the government hit back with a new decree declaring various flagship projects including the Inter-Oceanic Corridor areas of national security.

The government has allocated a swathe of public works to the armed forces, including a contract for a key section of the “Mayan Train”, another of the president’s projects aimed at developing Mexico’s poorer south.

Shares in Grupo Mexico were down by more than 4% on Friday afternoon, a drop mirrored by Grupo Mexico Transportes’ stock.