Mexico Takes Over Oceanografia After Citigroup Alleges Fraud

Mexico’s government took control of Oceanografia SA after Citigroup Inc. alleged fraud on loans to the oil-services company and requested an investigation, Attorney General Jesus Murillo Karam said.

State-owned oil producer Petroleos Mexicanos, known as Pemex, found inconsistencies in how Oceanografia billed, Murillo said today at a press conference in Mexico City.

“The attorney general’s office is working along with financial authorities and the bank in order to establish criminal responsibility quickly,” Murillo said. The Finance Ministry said banking regulator CNBV also is investigating the allegations.

The government will protect the operations of Oceanografia, and will attempt to recoup misappropriated funds, Murillo said. The company’s services are “crucial” to Pemex’s operations, especially for activities in the Gulf of Mexico, Fluvio Ruiz, a Pemex board member, said in a telephone interview today.

Oceanografia’s assets have been impounded, said a Pemex press official who asked not to be identified, citing company policy. The probe will cover more than 40 Oceanografia contracts with Pemex, the official said. He declined to say if Pemex will manage Oceanografia’s operations.

Contract Ban

“If this is not the first time Mexico is taking over such a private energy company this size, it would be one of the very few in history,” former Deputy Energy Minister Mario Gabriel said by telephone today. “Nothing like that happened while I was at the ministry,” said Gabriel, who was a deputy minister from 2006 to 2012.

New York-based Citigroup today said it reduced last year’s profit by $235 million because of the alleged fraud by Oceanografia.

Mexico’s anti-corruption agency banned Ciudad del Carmen-based Oceanografia on Feb. 11 from bidding on government contracts for 21 months after saying it violated agreements with Pemex. The agency said Oceanografia had modified contracts and issued a fine of about $1.9 million.

That prompted Citigroup to begin a review of its ties to Oceanografia, the bank said in a statement. After working with Pemex, Citigroup determined that only $185 million of the collateral backing $585 million of loans to Oceanografia could be verified, according to the statement.

Bonds Plunge

Oceanografia defaulted this month after the expiration of a 30-day grace period on a $19 million interest payment due Jan. 15.

The company’s $335 million of secured notes due 2015 plunged 21 cents to 14 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Before the anti-corruption probe was disclosed earlier this month, they were trading at 91 cents.

Jorge Betancourt, head of investor relations for Oceanografia, said the company declined to comment on Citigroup’s announcement.

Citigroup’s Mexico unit, Banco Nacional de Mexico, or Banamex, is the nation’s second-largest bank with almost 1,700 branches, according to its second-quarter securities filing. Javier Arrigunaga, a member of Citigroup’s operating committee, is CEO for Grupo Financiero Banamex, the local holding company.

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