Mexico takes over part of Grupo Mexico railway, spooking investors

FILE PHOTO: Logo of mining and infrastructure firm Grupo Mexico is pictured at its headquarters in Mexico City

By Valentine Hilaire and Noe Torres

MEXICO CITY (Reuters) -Mexico's government on Friday took over part of a railway in southern Mexico operated by a unit of Grupo Mexico, sending shares in the mining and infrastructure company tumbling more than 4% after the expropriation.

News of the seizure sparked fresh alarm among financial analysts over the polices of President Andres Manuel Lopez Obrador, and raised questions about Grupo Mexico's bid to acquire U.S. Citigroup Inc's retail banking arm in Mexico.

"What happened today with Grupo Mexico could put that transaction at risk," Gabriela Siller, an analyst at Banco Base, said of the firm's plan to buy the unit known as Citibanamex.

Grupo Mexico is controlled by German Larrea, one of Mexico's richest men, who met Lopez Obrador this week, according to media reports. The leftist president said on Tuesday that talks over Grupo Mexico's plan to buy Citibanamex were going "really well".

Calling the move "surprising", the firm's 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 its options.

Lopez Obrador has clashed frequently with big business, accusing political opponents of rigging the economy in favor of corporate elites, and sparking disputes with the U.S. and Canada over his bid to tighten state control over the energy market.

Earlier, his government issued a decree ordering a "temporary" takeover of around 120 kilometers (75 miles) of the firm's network in the area around the Gulf coast 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.

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

"The decree just creates unease for companies in a business climate that was already suffering," said Siller at Banco Base.

On Thursday, 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 part of the "Mayan Train", another of the president's projects aimed at developing the poorer south.

Shares in Grupo Mexico closed down 4.25% on Friday, a drop almost mirrored by Grupo Mexico Transportes' stock.

(Reporting by Valentine Hilaire and Noe Torres; Editing by Alistair Bell, David Gregorio and Jacqueline Wong)