Mexican regulators began looking into OHL Mexico SAB’s accounting practices last year and were moving to formally investigate the tollway operator before allegations of executives discussing bribing officials surfaced last month on YouTube, according to a person with knowledge of the matter.
The inquiry was triggered last year when market participants wrote letters to regulators questioning OHL’s accounting and after media reports about the company, according to the person, who asked not to be identified because the details are private. A formal investigation of the company’s accounting started last month by the Mexican securities regulator, known as the CNBV, the person said.
The regulator’s investigation is focused on accounting and communications with the market and not on the YouTube videos that appear to show executives engaging in a range of potential misconduct -- from discussing tricking officials to bribing judges, the person said. OHL Mexico has said the videos were illegally recorded and maliciously edited, and their release prompted a drop of 33 percent in the firm’s stock last month.
The Mexican unit of Spanish builder Obrascon Huarte Lain SA has said in filings that most of its concession agreements guarantee it a rate of profitability on investment. OHL Mexico counts the gap between “guaranteed profitability” and “actual profitability” as “other operating revenues,” according to its earning statements. The results are one of the areas being reviewed, according to the person.
OHL Mexico said in an e-mailed statement that all of its financial information is public and has been audited “in accordance with corporate best practices.” The company said it has helped and will continue to help with the CNBV’s investigation and that the regulator’s findings are “of utmost importance” to its board of directors and audit committee.
The CNBV’s press office didn’t respond to a request for comment. The regulator said May 14 it’s visiting the company’s offices to make sure it’s complying with market regulations. Possible outcomes of the investigation could range from finding that OHL Mexico acted appropriately, requiring a restatement of earnings or charging fines, the person with knowledge of the matter said.
The company’s annual consolidated financial statement was audited by a local member of Deloitte Touche Tohmatsu Limited. Deloitte declined to comment, citing its communications policy.
OHL Mexico explained on its 2014 annual report its method for keeping track of guaranteed profitability.
“The guaranteed profitability is considered the maximum amount of revenues recognizable under a concession arrangement, even though this may exceed actual profitability that would be recognized for a financial asset under IFRIC 12,” referring to the International Financial Reporting Interpretations Committee.
Last year, OHL Mexico’s most profitable tollroad, known as Circuito Exterior Mexiquense, a 110-kilometer (68-mile) outer beltway around parts of Mexico City, recorded other revenue of more than 6 billion pesos, more than double sales from tolls and construction. Under that concession, OHL Mexico says it’s guaranteed a real internal rate of return net of taxes, or profitability, of 10 percent.