MEXICO Law and Practice Contributed by: Julián J. Garza Castañeda and Paulina Bracamontes Belmonte, Nader Hayaux & Goebel
to participate in multiple investments in a number of industries, through structures that are similar in nature to the PPPs. 8.3 Governing Law Generally, under Mexican law, parties to civil and com- mercial transactions may validly designate the appli- cability of foreign laws and submit expressly or tacitly to the courts of a foreign jurisdiction (which may be the domicile of any of the parties, the place where the obligations shall be performed or the location of the assets subject to the transaction). Other than specific exceptions (such as public policy), a Mexican judge will apply any foreign laws that the parties have validly designated as governing laws to the particular trans- action. Likewise, subject to several requirements, a final and conclusive judgment obtained from a court of a foreign jurisdiction to which the parties have validly submitted, will be recognised and enforceable by a Mexican court in Mexico. Note that, in all cases the Mexican courts will apply Mexican procedural law. In the case of project financing, the parties shall care- fully analyse whether it is permissible and conveni- ent to subject a particular contract or agreement to a specific governing law or to have the parties thereto submit to a specific jurisdiction. For purposes of such analysis, the following factors may be relevant: the domicile of the parties, the location of the assets underlying the specific contract, the place where the obligations will be performed, and whether the respective agreement is subject to mandatory local legislation (eg, in case of regulated industries). 8.4 Foreign Ownership In accordance with Article 27 of the Mexican Con- stitution ( Constitución Política de los Estados Unidos Mexicanos ), it is expressly prohibited for foreign enti- ties or foreign individuals to directly own real property or water rights within a 100-kilometre radius along the borders and 50-kilometre radius along the coastline (the “Restricted Zone”). However, foreign entities and foreign individuals may acquire indirect ownership or rights over land or water located within the Restricted Zone; this could be done either through a Mexican company (of which the for- eign acquiror is a shareholder or partner) or through a
Mexican trust (in which a Mexican financial institution acts as the trustee and direct owner of the property and the foreign acquiror acts as the beneficiary). In any case, indirect ownership through any of the alternatives mentioned above may be subject to obtaining authorisation from the Ministry of Foreign Relations ( Secretaría de Relaciones Exteriores ) or filing notices with such authority. 8.5 Structuring Deals The main issues that need to be considered when structuring the deal and the legal form of a project company, and the laws relevant to project companies, are outlined below: • construction and operational risk; • prospect valuations; • deployment of funds and contractor performance; • rating agency assessments of the transaction; • debt servicing structures and waterfalls; • identifying all parties involved in the transaction and their respective roles; • collateral package and flow of funds; and • specific regulations applicable to the project enti- ties, and permits and licensing. Foreign investment restrictions in Mexico apply to a few industries. 8.6 Common Financing Sources and Typical Structures Lending activities of both foreign and local lenders in Mexico may be conducted through multiple struc- tures, including secured lending, club deals, syndi- cation, structured finance, securitisation transactions and bond offerings. There are no specific restrictions applicable to the structuring of project financings. Two common sourc- es of funding available are project bond offerings (both public and private) and bank syndicated loans, including those with the participation of export credit agencies (which are generally subject to beneficial tax treatment). As with every project financing, the structure can be as complex as the project itself, depending on a vari-
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