Grupo TMM SA, Mexico's largest transportation company, said its rail unit won a court ruling in favor of it receiving a refund for taxes overpaid in 1997 that analysts estimate may be worth about $1 billion today. Magistrates at a federal tax court ruled 9-0 in favor of the rail unit, which is owned by TMM and Kansas City Southern. The court overturned a December ruling that blocked the tax payment and ordered the refund be paid, TMM said in a statement on Business Wire. TMM said it doesn't expect further appeals by the government and isn't sure when the tax rebate will be paid. The rail unit's value-added tax refund would give TMM the cash it needs to pay $377 million in bonds it defaulted on in May and would eliminate the urgency to sell its 43 percent stake in the railroad to its partner Kansas City Southern, said Jim Harper, an analyst with BCP Securities in New York. A refund "would solve all TMM's problems,'' Harper said. "But it's really hard for me to envision the government just handing over a check for $1 billion." TMM agreed in April to sell its stake to Kansas City Southern, which owns 37 percent of the railroad, for $412 million in cash and stock. The Mexico City-based company pulled out of the agreement yesterday. "Right now they're 100 percent focused on the VAT refund and anything else is noise," Harper said. The acquisition of the rail unit, which links Mexico City and most of the country's major ports with the U.S. through Laredo, Texas, would increase Kansas City Southern's annual sales to $1.3 billion from $570 million and about double its tracks to 6,000 miles. Kansas City Southern has threatened to take legal action to force TMM to comply with the acquisition agreement. The rail unit says it overpaid 2.1 billion pesos ($266 million) of taxes when TMM and Kansas City Southern bought it from the government in 1997 for $1.2 billion. The amount has increased because of adjustments for inflation, interest and penalties. The government, which owns a 20 percent stake in the railroad, has fought in court against making the payment. The government may negotiate to exchange an October put option to sell its 20 percent stake for the tax refund, instead of paying cash, Harper said. The stake is worth about $480 million. Investors holding $177 million of 9 1/2 percent bonds that matured in May and $200 million of 10 1/4 bonds that are due in 2006 are probably rooting for the rail unit to get the refund in cash because it improves their chances of getting paid, Harper said. "Bondholders would be thrilled for this money to come in," he said.
International business. This is beginning to seem like a soap opera. KCS must see a pot of gold at the end of some rainbow, to be pursuing the project with such determination. Boxcab E50
