| Wilbur Ross, the well-known bankruptcy adviser and investor, is arguing
that the Mexican government breached rules set down by the North American
Free Trade Agreement on September 4 when it expropriated 27 of the
country's 60 sugar refineries.
Mr. Ross and Sam Zell, the Chicago real estate developer, were among
the investors in Grupo Azucero Mexico, an company affected by the move.
Mr. Ross's complaint stems from the fact that the government sets the
prices of raw and refined sugar. Powerful sugar cane growers have pushed
the price of raw sugar above that of refined sugar in other parts of the
world, while the cost of refined sugar has been kept low owing to
oversupply in the domestic market.
That narrow spread placed sugar mills in a very uncomfortable position.
"This led to severe pressure on the industry," said Mr. Ross,
who added: "Sugar in Mexico is a highly politicized commodity."
The government was finally spurred to expropriate the mills by sugar
workers, who were incensed that they had not been paid. Shortly
afterwards, Mr. Ross said, the government allowed sugar prices to rise by
$15 a ton.
On the basis of the new price, Mr. Ross believed Grupo Azucero would
have an annual cash flow of $50m, which would be plenty for the company
not just to cover its debt service but also to provide a reasonable return
for investors. Grupo Azucero has been struggling to emerge from bankruptcy
for the past year.
Previously, he added, the government had refused to allow a half-dozen
inefficient mills to go out of business. Their disappearance could also
have allowed the mill he invested in to have made a reasonable return, he
argued. "We think what would be a more sensible solution would be a
real private market solution," said Mr. Ross.
Mr. Ross charged that unless Mexico compensated investors at a price
for the mills based on the new price of sugar, the government would be
breaching Nafta's rules on expropriations. Mr. Ross estimated the full
value of the mills would be $1bn. "This is the first case of
expropriation in any of the Nafta countries," Mr. Ross said, adding:
"At least we feel they should make a fair and prompt payment."
Mr. Ross also noted that the timing of the expropriation coincided with
a push by Mexico to get an investment-grade debt rating.
Mr. Ross led Rothschild's bankruptcy practice for many years before
starting his own firm last year. He now runs hedge and private equity
funds specializing in distressed situations. |