Gruma’s poor choice of partners

GRUMA S.A.B. de C.V. is a publicly traded company.

Its stock is listed on the Mexican Stock Exchange (MASECA B and GRUMA B) and the New York Stock Exchange (MSK and GMK).

GRUMA purchased Molinos Nacionales CA (Monaca) from US group International Multifoods in 1999, shortly after Hugo Chavez became president of Venezuela.

Venezuelans are big consumers of corn and wheat flour, and the G-3 free trade agreement between Mexico, Colombia and Venezuela was in effect. At the time, GRUMA’s acquisition of Monaca seemed like a sound decision.

But Chavez doesn’t like capitalists, private enterprise or the government of Mexico, so GRUMA’s fortunes in Venezuela started to falter.

With the outlook for GRUMA’s Venezuelan assets going from poor to bad and likely worse, the Mexican company’s president and board of directors decided to bring in a Venezuelan minority partner to make things right between GRUMA and the Chavez regime.

In early 2006, GRUMA restructured its Venezuelan operations by making Ricardo Fernandez Barrueco (aka the Corn Flour King, Arepa King, Mr. Arepa) a minority partner.

The new partnership was incorporated in Spain through Spanish corporations Valores Mundiales SL and Consorcio Andino SL.

Valores Mundiales owned 100% of Monaca, with GRUMA holding 72.86% of the Spanish company and Fernandez Barrueco holding 24.14%.

GRUMA also owned 57% of Spanish corporation Consorcio Andino SL, which owned Derivados de Maíz Seleccionado, C.A. (Demaseca) in Venezuela. Fernandez Barrueco owned 40% of Consorcio Andino.

It appears that GRUMA viewed Fernandez Barrueco as a good “fit” with the Mexican group’s operations in Venezuela.

Fernandez Barrueco was a regime “insider” who claimed to have an externally audited net worth of over $1.6 billion as of December 2005.

Fernandez Barrueco also was known to be a business associate and, reputedly, a close friend of very senior Chavez regime figures like the president’s older brother Adan and Diosdado Cabello.

In fact, as Caracas Gringo posted in August 2009, Fernandez Barrueco was known to be a key “testaferro” (front man) for Cabello in the accumulation of banking, brokerage and insurance company assets.

Fernandez Barrueco also owned a string of food companies that were doing billions of dollars worth of business directly with the Chavez regime.

It’s unclear yet how GRUMA settled on Fernandez Barrueco as their best potential partner in Venezuela. However, it appears that GRUMA’s president and directors failed in their fiduciary responsibilities and obligations to GRUMA shareholders.

Already in 2005, Fernandez Barrueco’s questionable associations with senior Chavez regime personalities were widely known in Venezuela.

Respected bloggers like Devil’s Excrement and VCrisis published a lot of information about Fernandez Barrueco in 2005 and 2006 including PEP assessments by Kenneth Rijock, a Florida-based expert on money laundering. Anyone who took the time to Google Ricardo Fernandez Barrueco would find this information online in a flash.

But GRUMA apparently did not do its due diligence homework, or else it didn’t care, or perhaps it settled on Fernandez Barrueco as the best option for a Venezuelan minority partner precisely because of the person’s direct associations with senior regime figures.

In the greater scheme of things, GRUMA’s losses in Venezuela aren’t that substantial. Chavez has nationalized over $23 billion worth of foreign-owned assets since 2005, of which over $14.6 billion still have not been paid to the former owners yet – and probably never will be paid.

But GRUMA entered into a partnership with an individual whose reputation definitely was questionable, to say the least, long before the partnership was incorporated in Spain.

At the very least, investors that own GRUMA stock are legally entitled to receive full and complete disclosure on why GRUMA’s president and directors made such a poor decision. But so far, there has been only silence from GRUMA’s headquarters in Monterey.

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About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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One Response to Gruma’s poor choice of partners

  1. David says:

    Sounds like the NYSE listings mean that the SEC and/or the Justice Department could wind up issuing FCPA fines to MSK and GMK:
    http://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act

    Like

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