Exclusive-Mexican firm seeks $380 million from Honduran state over blocked unit

By Valentine Hilaire

MEXICO CITY (Reuters) – Mexican investment firm JLL Capital, whose Honduran operation has been blocked since 2018 in a local dispute, is seeking some $380 million from the Central American country in arbitration proceedings, claiming that it violated foreign investment protections, documents reviewed by Reuters show.

The case was triggered in January 2017 when JLL sought more control of its CA Capital affiliate, a Honduran non-bank lender, through a capital increase, according to the previously unreported arbitration notification sent to the World Bank in February.

The capital increase slashed minority shareholders’ stake to 0.02% from 39.98%, prompting them to hire then-President Juan Orlando Hernandez’s brother Amilcar Hernandez to represent them to challenge JLL’s move in 2018.

They say the shareholders meeting where their stakes were virtually wiped out violated their legal rights, citing irregularities in the invitation to attend.

The invitations were properly handled, countered Daniel Garcia Barragan of the law firm Garcia Barragan Abogados representing JLL last week.

The dispute prompted a court to name an administrator in 2018 to run Tegucigalpa-based CA Capital, which made payroll loans. JLL alleges that her appointment was illegal, and that she prevented it from operating the unit, emptied CA’s accounts through legal maneuvers, and has cost it at least $380 million.

On Feb. 13 JLL launched arbitration proceedings against Honduras through the World Bank’s International Center for Settlement of Investment Disputes (ICSID), saying the government failed to apply foreign investment protections in a regional trade agreement.

JLL alleges that Hernandez improperly pressured the court to rule in investors’ favor, helped by his family ties.

“JLL was directly affected by a network of influence peddling and corruption woven by Amilcar Hernandez, brother of Honduras’ former president,” Garcia Barragan told Reuters. Hernandez’s political pull has blocked JLL and other foreign investors from running their business, he added.

Amilcar Hernandez could not be reached for comment. The Honduran government did not respond to a request for comment.

JLL is also represented by Clifford Chance, said the ICSID website which lists parties to the dispute. Italo-Argentine lawyer Christian Albanesi agreed to be appointed as an arbitrator on the case on April 4, the website added.

In February, the government of Hernandez’s successor Xiomara Castro declined to pay 3.0 billion lempiras ($122.19 million) in another arbitration process launched by a U.S. company, saying a “public-private corruption network” had hurt Honduras.

Former President Hernandez, a one-time U.S. ally who led Honduras from 2014 until January 2022, is facing drugs and weapons charges in the United States. He has pleaded not guilty.

This is the second claim against Honduras submitted to World Bank’s ICSID this year, its website shows. Some analysts say this casts doubt on the Central American nation’s ability to attract foreign investment.

“In Honduras, the independence of the judicial branch and the protection of contracts are weak, limiting what type of and how many businesses come to the country,” said Guillermo Pena, president of nonprofit public policy think tank Eleutera.

When governments intervene in bad faith it leads to “chronic distrust in the system,” Pena added.

CA Capital has worked with 34 Honduran government agencies and granted over 47,000 credits via payroll worth about $58 million before the judicial administrator took over the firm. Executives had planned to expand operations to Guatemala, but pulled the plug due to its legal troubles in Honduras.

($1 = 24.5510 lempiras)

(Reporting by Valentine Hilaire in Mexico City; Additional reporting by Gustavo Palencia in Tegucigalpa; Editing by Anthony Esposito, Christian Plumb and Richard Chang)