Constellation Brands: Referendum in Mexicali tears down plans to build brewery in Mexico

On March 23, the Mexican government said local residents voted by about 76% to reject the completion of a more than USD $1 billion brewery under construction by Constellation Brands Inc (STZ.N); this will likely further shake i nvestor confidence in Mexico.

President Andrés Manuel López Obrador

supported the referendum results issued by the inhabitants of Mexicali , as he has in other high-profile projects including a partially built airport.

“They have to respect the decision of the people . I think (the company) will understand when there’s a result like this one,” López Obrador said during his regular morning news conference.

Constellation

’s shares tumbled 12% on Monday to close just above USD $105, down from a previous high of USD $208 on February 20.

López Obrador said his support for the result of the local referendum didn’t mean his government opposes foreign investment , adding that he planned to discuss an alternative site for the brewery with Constellation .

After the referendum results were announced, Mexico’s Business Coordination Council ( CCE ) criticized the referendum and said these type of decisions undermines the country’s ability to attract foreign investment and increases the risk face by the economy , sparked by the collapse of oil price and the COVID-19 pandemic .

Earlier this month, the U.S.-based company said it would consider other locations if Mexico became problematic.

The results came as the Mexican peso hit a new low against the U.S. dollar , trading at MXN $25 per US.S. dollar for the first time ever.

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“That may be due to a larger perception of risk in Mexico” driven by the vote, said Gabriela Siller, head of economic analysis for Mexico City-based Banco Base.

Several prominent Mexican business lobbies blasted the referendum process, saying it would generate uncertainty and hurt investment at a time when Mexico’s economy is weak and could be further damaged by coronavirus.

López Obrador’s critics have criticized previous referendums as reflecting the will of only a tiny fraction of voters, lacking legitimacy due to the political parties behind them, and undermining private investment.

Environment activists

in Mexicali argued that the project put water supplies at risk.

, which brews Modelo, Corona , and other Mexican beers for export to mostly American drinkers, has countered that the brewery would affect less than 1% of local water supplies and that the plant had all the requisite permits.

A Mexican government official said that under Chapter 14 of the newly ratified U nited States-Mexico-Canada Agreement, the project cancellation could be considered an indirect expropriation if the U.S. government wanted to pursue the matter.

“Surely the U.S. government is directly talking to the Mexican Foreign Ministry about this,” the person said, speaking on condition of anonymity.

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