812.77/1207
The Mexican Embassy to the Department of State
Memorandum for Mr. Sumner Welles, Under Secretary
The Department of Foreign Relations of Mexico has drawn up the present Memorandum in reply to the one which Your Excellency was good enough to present to me on the 24th ultimo, with regard to the expropriation of the National Railways of Mexico.
[Page 688]The Department mentioned has considered it advantageous instead of replying, one by one, to the ten questions contained in Your Excellency’s memorandum referred to, to make a general explanation, more effective because of unity and extent, which contains the pertinent details:
In the memorandum of June 24th last, the Department of State of the United States of America was good enough to formulate ten questions with regard to the form and conditions in which the Government of Mexico will pay the indemnification for the National Railways, expropriated in virtue of the Decree of June 23, 1937.
In order that the American Department of State may get a complete understanding of the matter, the Department of Foreign Relations wishes to explain below what the true situation is with respect thereto, both from the economic and the legal standpoint.
The indebtedness of the National Railways exceeds five hundred million dollars ($500,000,000), and according to the most optimistic estimates, the present value of the physical property of the railways does not amount to anywhere near half this sum. Consequently, the holders of stock of the Railways are owners of a negative quantity; the stock has absolutely no value.
As can be seen, the Government of Mexico cannot have the intent of excluding them from indemnification, since they are not entitled to any, as the condition in which they are was not caused by the Agreement of June 23rd last and is the same as has been observed for a period of many years.
Of the shares of stock representing the capital of the Railways, the Government of Mexico holds the majority, and the Board of Directors named in Mexico City by such majority has already declared its agreement to the expropriation, as well as the express desire not to present any opposition to it. On its part, the New York Board of Directors, which represents the minority of the stockholders, refrained from expressing its opinion on the matter. If the stockholders did have any right, they themselves have voluntarily renounced it.
As far as the problem of the valuation of the National Railways is concerned, for the purpose of the payment of an indemnity, it is well to call the Department of State’s attention to the fact that the money value of the Railways mentioned is not known, nor is it recorded anywhere. In virtue of that fact, and in accordance with the provisions of Article 10 of the Expropriation Act of November 23, 1936, the procedure to which recourse must be had in the present case is that of direct valuation; but this does not exclude the possibility of an understanding with the interested parties, for the purpose of fixing the amount which equitably is considered fair for those persons who are entitled to receive any compensation.
[Page 689]The problem stated is therefore that of determining who are entitled to indemnification and under what conditions this is to be paid to them. To get a full understanding of this problem it must be recalled that, as this memorandum states, the right to indemnification cannot belong to the stockholders, as the indebtedness is greater than the value of the property. The only persons entitled to ask for compensation of that character are the bondholders. With regard to the latter, the following explanations must be made:
- First: That the Expropriation Agreement of June 23rd last in no wise affects the guaranties given by the Government of Mexico with respect to the indebtedness of the National Railways, and that those guaranties will be maintained in entirety unless modified by an agreement made with the said creditors.
- Second: That whatever the amount of the indebtedness may be, the indemnification must not be greater than the value of the National Railways.
Taking these circumstances into account, the Government of Mexico is disposed to enter into agreements with the bondholders and has already stated this to the interested parties.
With respect to the details requested as to terms, form of making the payment, currency, etc., the provisions of the Expropriation Act do not preclude the possibility of a direct understanding between the Government of Mexico and the persons affected.
The Department of Foreign Relations considers that the foregoing explanation answers, in essentials, all the questions formulated by the Department of State of the United States of America in its kind memorandum of June 24th of the current year. With regard to the data requested in case of opposition, the Expropriation Act of November 23, 1936, amply covers the points in its Articles 4, 5, 6 and 7. However, as the Government of Mexico believes, with good reason, that the creditors are disposed to reach a settlement, it is to be hoped that the future obligations of the Mexican State toward the holders of bonds of the National Railways may be fixed by mutual consent.