Grupo Elektra Delisted from Mexican Index Amid Legal Issues

Grupo Elektra has been removed from the Mexican Stock Exchange (BMV) Indexes, according to a statement from S&P Dow Jones Indexes. The decision follows a prolonged suspension of the company’s stock trading, which exceeded the 20-day limit set by the exchange's rules.

“S&P Dow Jones Indexes announces the removal of Grupo Elektra S.A.B. de C.V. from the S&P/BMV IPC and other S&P/BMV Indexes effective before the market opens on Monday, Sept. 2, 2024,” the statement read.

The removal was prompted by Elektra's failure to resume trading within the stipulated timeframe, leading to a zero-price valuation for its stocks. S&P Dow Jones Indices noted that if Elektra’s stock begins trading before the removal date, the final closing price on its primary listing will be used instead.

Elektra will not be eligible for re-inclusion in the S&P/BMV Indexes for six months, even if its stock resumes trading during that period.

In March, Fitch Ratings downgraded Grupo Elektra's credit rating, citing concerns over corporate governance practices within the broader Grupo Salinas conglomerate, selective defaults by TV Azteca, and local bond repurchases. The downgrade affected Grupo Elektra's long-term local and foreign currency ratings, which were lowered from 'BB' to 'BB-', while its national long-term rating dropped from 'A+' to 'A(mex)'. Additionally, Elektra's short-term rating was downgraded from 'F1+' to 'F1(mex)'.

“Fitch believes that Grupo Salinas' corporate governance practices add uncertainty about similar practices at the Elektra level. The agency believes that TV Azteca's debt default and Total Play's private bond exchange affirm Fitch's previous assessment regarding the differentiated treatment of Grupo Salinas companies to different investor groups. Fitch believes these practices could impact Elektra's ability to access financing,” stated Fitch Ratings.

Elektra’s delisting from stock indexes follows a recent fine imposed by the National Banking and Securities Commission (CNBV) on Carlos Salinas Pliego, a board member of Grupo Elektra. Salinas Pliego was fined MX$844,900 (US$42,963.16) for violating securities laws by selling shares in Elektra without the required public offering or auction authorized by the CNBV.

Additionally, Grupo Elektra is engaged in a legal battle over a tax debt. The president of Mexico’s Supreme Court of Justice (SCJN), Norma Piña Hernández, has admitted an appeal filed by Grupo Elektra seeking to avoid a payment of MX$18.4 billion in taxes owed since 2013. This debt has grown to over MX$33 billion due to interest and penalties, according to tax authorities.

“We are saddened by the lack of diligence and objectivity of some magistrates, who in the face of systematic pressure from the federal government and fear of being considered corrupt, refused to analyze the merits of our injunction,” Grupo Salinas said in a press release regarding the tax debt. “We will continue to make use of all the legal instruments at our disposal to defend our causes, the reputation of our companies, and the inclusive prosperity of our employees and customers.” Following this statement, the group submitted the appeal before the SCJN.

This case is part of a broader legal struggle, with President Andrés Manuel López Obrador urging the court to expedite the resolution of this and another related case involving an additional MX$1.4 billion in disputed taxes from fiscal years 2008 and 2013. The court proceedings have been assigned to Justice Alberto Pérez Dayán, who will draft a proposal for the court's consideration. 

Concerns persist regarding Grupo Salinas' governance practices and their potential impact on Elektra's access to financing. Fitch’s analysis primarily focuses on Elektra's retail business, excluding its financial arm, Banco Azteca. However, Fitch acknowledges that Banco Azteca’s performance could positively influence Elektra’s competitive position.

“The commercial business complements the sale of its products through the credit offered by Banco Azteca and, in turn, Banco Azteca maintains a customer base composed mainly of buyers from the Elektra and Salinas y Rocha commercial stores,” Fitch noted. The agency anticipates that the impact of the rating downgrade will be short-lived, with Elektra's adjusted gross leverage metrics for its retail segment expected to return to approximately four times its 2023 level by the end of 2024 and remain within that range thereafter.

In 2023, the company’s consolidated performance slightly missed expectations for earnings recovery. However, investments in logistics and IT began yielding gradual returns, and the company demonstrated agility in adapting its business model and strategy to align with current trends, according to Grupo Elektra’s report.

The agency forecasts Elektra's gross credit portfolio to grow by around 8% in 2024, with consolidated capital expenditure projected at approximately MX$8 billion.