Top Graña y Montero Executives Resign to Save Company

Mario Alvarado of Graña y Montero.

The top three officers of Peru’s No.1 construction and engineering firm, Graña y Montero, resigned Monday night in the wake of a precipitous fall in share prices on the New York (NYSE: GRAM) and Lima (GRAMN) stock exchanges.

Share prices fell 27% on the NYSE at closing on Friday, Feb. 24, and in Lima the accumulated share price fall between Friday and Monday was 50.6%.

Also in Lima, the deputy superintendent of the Banking Superintendency, Jorge Mogrovejo, told RPP Radio that the four main private pension funds — Integra, Prima, Profuturo and Habitat— have lost S/.700 million because of the price drop.   In the United States, law firms are studying possible complaints to be filed by investors against the losses sustained this week.

Jose Graña, resigning chairman of Graña y Montero

The company, in a statement issued before an extraordinary shareholders meeting to be held today, Feb. 28, announced the resignation of long-time chairman José Graña, CEO Mario Alvarado, and Hernando Graña, chief commercial officer of GyM and chairman of two of its subsidiary companies. The 83-year-old company gave the reason for the major changes as “the termination of the South Peru Gas Pipeline, the fall of share prices and the false allegations made by the former representative of Odebrecht in Peru.”

The company has been hard hit by the termination of the construction contract for the South Peru Gas Pipeline, in which it invested heavily after corruption-beleaguered Odebrecht of Brazil left late last year, and the annulment early this month of the Chavimochic III irrigation project in northern Peru, in which it was also working as a consortium with Odebrecht.

Added to these financial blows is the impact of the ‘reputational crisis’ the company faces, following statements  by a state witness that GyM knew of bribes being paid by its Brazilian associate, Odebrecht, to secure construction projects in Peru.

GyM denies the allegations.

In early February GyM’s resigning CEO, Mario Alvarado, told the Congressional commission investigating the Odebrecht “Lava Jato” corruption that “It is clear that we were duped, we now know that it was a bad decision. If we had known before, we would not have become their associates. We have lost a great deal, and we have paid the consequences of that ruse.”

Investigations in Brazil and other Latin American countries, as well as the U.S. and Switzerland,  have led to the arrest and conviction in Brazil of several of Odebrecht’s key officers, including founder Marcelo Odebrecht, who is now serving 19 years in prison even after turning state witness for a lighter sentence.  The company paid over $799mn in bribes in 12 countries in Latin America and Africa

The Graña y Montero team at the New York Stock Exchange in 2009.

In Peru, government connections, bids and bribes were handled over the past 12 years by Odebecht’s executive director for Peru, Jorge Barata, who has turned state witness in Brazil and in Peru.  Barata testified before Peru’s state attorney on the Odebrecht case that GyM and two other Peruvian contract firms in the consortium with Odebrecht— ICCGSA and JJC Contratistas Generales— knew that Odebrecht was paying bribes to secure the contracts. The four companies formed a consortium which won the bid in 2005 for Sections II and III of the Inter-Oceanic Highway.

In statements last year to the U.S. Justice Department, Barata said Odebrecht paid $29 million in bribes in Peru between 2005 and 2014, of which $20 mn was paid to President Alejandro Toledo to secure the bid to build the Inter-Oceanic Highway project, and $3 mn was paid in campaign finance funds to President Ollanta Humala and his wife Nadine Heredia.

Peru’s judiciary has filed an arrest and extradition request in the U.S. for Alejandro Toledo, but despite the noise from Congress and political opponents, in the Humala case there are no laws regulating campaign financing amd thus the campaign funds may have been unethical but were not illegal — unless it can be proven that the funds directly influenced bidding on projects, which in the Humala administration would have been the South Peru Gas Pipeline.




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