How the former president of Paraguay became an uncomfortable partner for Chile’s Luksic group

The Chilean conglomerate, belonging to one of the richest families of that country, has two alliances with former Paraguayan President Horacio Cartes Jara. CCU, the firm that it controls together with Heineken, and the fuel distributor Enex are in that country together with Cartes, who has been accused by the United States of acts of corruption.

Andrónico Luksic led a delegation that a week ago met with the former president, and his staff, in Asunción. The society of almost a decade wobbles.

They are separated by a little more than two thousand kilometers. They integrate great family fortunes of their respective countries, but with dissimilar sizes. And they have also been partners for almost one decade. A week ago the faces were seen in person.

Read also: Check out our coverage on Paraguay

Andrónico Luksic Craig (68 years old) got on a Cessna 750 Citation plane owned by him and traveled on Saturday, August 6, to meet in Paraguay with Horacio Cartes Jara (66 years). Only two weeks had passed since the United States had targeted Cartes -president of Paraguay between 2013 and 2018- for cases of corruption.

Accompanied by an important part of the leadership of the Chilean conglomerate -the general manager of Quiñenco, Francisco Pérez Mackenna; the prosecutor, Rodrigo Hinzpeter, and the general managers of CCU and Enex, Patricio Jottar and Nicolás Correa-, Luksic visited Cartes at his residence in Asunción and met with the former president for almost three hours, according to a report by Ciper Chile and ABC Color.

Cartes was not alone either: he was supported by his personal lawyer, Carlos Palacios, and his two trusted executives: Francisco Barriocanal and Juan Carlos López Moreira.

The meeting was a meeting of partners that probably will not continue to be.

On July 22, U.S. Secretary of State Antony Blinken declared Cartes as ineligible to visit that country and accused him of participating in “significant acts of corruption”.

The ban was extended to his three adult children, Juan Pablo, Sofía and María Sol Cartes Montaña. Blinken denounced Cartes for obstructing an investigation on “transnational crime to protect himself and his criminal partner,” actions that allowed and perpetuated “the recently documented participation  of Cartes with foreign terrorist organizations.”

The declaration pointed to a Venezuelan-Iranian plane that also transported cigarettes from the tobacco company of Cartes, one of several business branches of the former Paraguayan president.

Cartes defended himself that day: “I deny and reject the content of the accusations, which I consider baseless and unfair,” he said. Cartes has attributed the intervention of the U.S. to an attempt by the Democratic government to influence their country’s politics.

In April 2023 Paraguay will have presidential elections, but in December this year each coalition will elect its candidate in primaries. Cartes belongs to the Colorado Party, dominant in Paraguayan politics for decades, and the candidate he supports, Santiago Peña leads the polls.

Peña competes in the internal of the Colorado Party with the Vice President, Hugo Velásquez, who is supported by Mario Abdo, current Paraguayan President. The contest suffered another blow on Friday: the U.S. now included Velásquez in his list of corrupt Paraguayans.

But the Luksic’s partner is Cartes and once the U.S. targeted him, the CCU and Enex boards discussed steps to follow. And it was resolved to send a delegation of high weight to Asunción to talk with Cartes.

On Sunday the 7th, one day after the appointment, Rodrigo Hinzpeter declared to the Federal District that “in the meeting it was decided to take the relevant measures to address this new scenario, and its scope and implications will be a matter of analysis in the directories of the respective companies”.

This week they held some board meetings in the Paraguayan subsidiaries. Although the reason was not disclosed, only one issue makes sense in business circles: the shareholders must have asked the directories to access economic information on the companies. It is the prelude to a due diligence to disarm the company and buy one from another.

The Luksic group is looking for a prompt solution, but not in a hurry. They know it’s a complex problem with complex solutions. But everything points to the dissolution of the alliance that today includes two companies: Bebidas del Paraguay and Enex Paraguay, where they are almost equal allies.

Luksic’s companies could buy the part of his partner, but that partner does not want to be shown as guilty with that decision. The another alternative is for Cartes to buy, but there are doubts about the availability of enough resources.

But there is a third way: an exchange of assets, a formula that would not imply such a large disbursement of resources with a Cartes discredited in the U.S. In that case, transaction experts believe, Luksic would prefer to keep the bottling company, a business where being a regional player is more relevant than the fuel distribution.

“Investment in Paraguay is nothing for the size of Quiñenco. You must end the alliance with a partner that became uncomfortable,” says a knowledgeable person about the Paraguayan business reality.

The Luksics, moreover, have already entrusted their lawyers in the U.S. with a legal analysis of the implications of the case: CCU trades its shares in New York under the figure of ADRs. And Enex has direct operations in that country. An indictment of the Joe Biden government to a direct partner of their companies requires almost a single measure: to undo the partnership.

But the decision, in the case of CCU, does not only involve the Luksics. CCU is controlled by Quiñenco together with Heineken. The European multinational participates in the CCU board of directors -each party elects four directors and the ninth is by consensus- and has direct licenses with the company in which Cartes participates. Therefore, its opinion is relevant when it comes to decide the future of alliances.

ALLIANCE WITH A PRESIDENT

The Paraguayan group was founded by Ramón T. Cartes and the first of his companies, created in 1955, was Aerocentro, an aviation firm that represents Cessna Aircract Company in that country. In 1992 they created Ganadera Sofía and in 1994, Tabacalera del Este. Today it presents 33 companies on its website in areas as diverse as gyms, hotels, banking, pharmacies, food and football. And that it has added partners from global weight, such as the Korean Samsung and the Sheraton hotel chain.

The founder had four children, but two run the business: Horacio, who studied a technical career in the U.S., a country he can no longer enter, and Sarah, who also studied and lived in America in the 1980s. The sister was called by her father and brother in 1994 to return to Paraguay to co-manage the group’s companies.

In 2001 they ventured into the beverage business, buying the soda brand Pulp, and founding Bebidas del Paraguay, which a decade later became associated with CCU. A shared business produced the links between the two companies.

Both represented, for their respective countries, the Budweiser brand, but the Chilean company produced the beer that the Paraguayan one sold. Thus began Chilean-Paraguayan relations, at a time when Guillermo Luksic, who died in March 2013, directed CCU.

In April 2013, Cartes won the Paraguayan presidency with 45.98% of the vote. He was 56 years old and only four years earlier he had entered politics. He took command in August of that year. Four months later, the Luksic group signed an alliance with the group of companies of the President of Paraguay.

On December 23, the deal was announced: CCU bought 50.005% of Bebidas del Paraguay and 49.96% of Distribuidora del Paraguay. The firms recorded a turnover of US$45 million per year.

“The association materialized mainly through an injection of capital in the companies”, CCU communicated that day, without further details. In CCU’s report for that year, it is detailed that the agreement of the association and shareholders was signed with the siblings Horacio Manuel and María Sarah Victoria Cartes Jara. CCU bought shares from its new partners and subscribed new titles.

Shortly after, in 2014, CCU revealed the amount of the operation in the Securities & Exchange Commission of the U.S.: U$11.254 billion. In dollars of that time, the Luksics contributed US$21 million.

The alliance, in any case, would be more with Horacio than with his sister Sarah. In the property of Beverages of Paraguay, Horacio Cartes has around 45%, and Sarah, 5%.

Present today in Chile, Argentina, Uruguay, Bolivia and Paraguay, the bulk of the business of CCU is still in Chile, which contributed 72% of revenues in 2021, followed by Argentina, with 25%.

Revenues registered in Paraguay contributed only 1.9% of the global turnover, but weighs more than Bolivia and Uruguay. In those international businesses markets, CCU reports an aggregate market share of 18%, in volume.

In Paraguay they are in beers, soft drinks, nectar and mineral water and compete with the subsidiaries of AB InBev, the world’s largest beer manufacturer, and with Coca-Cola and Pepsi, in non-alcoholic beverages.

The alliance turned out so well that the Chilean group proposed a second association. And Andrónico Luksic traveled to Paraguay.

THE SECOND ALLIANCE

“The project was born during a visit by Mr. Andrónico Luksic to Horacio Cartes, at the end of the year 2018,″ Francisco Barriocanal recounted a year ago in the institutional magazine of the Paraguayan group about the start of Enex Paraguay. “Based on a successful association of both groups in Bebidas del Paraguay, our shareholders decided to enter together the fuel market,” he continued.

Months after Luksic’s visit to Cartes, in June 2019, the Paraguayan group acquired Gasur SRL, a company that back then had 44 service stations, in a country where there are more than 20 different distributors and more than 2,500 stations.

The Luksics, now via Enex, partnered with Cartes in December 2019, creating a common society. “We hope to become a relevant actor in Paraguay,” said Nicolás Correa at the beginning of 2020.

Unlike Chile, where the Shell license operates, in Paraguay they work the brand Enex, which the Chilean licensed in 2019 for a term of 10 years, renewable for five years, next to the upa! brand.

In addition to that 2018 visit, Luksic and Cartes met in 2019 in Colombia, where CCU inaugurated its first brewery plant in that country. Cartes was invited by his partner to the opening ceremony. Another contact? In December 2019, Banco Basa, also from the Cartes group, invited as a speaker to its annual seminar the economist Hernán Büchi, also director of Quiñenco, the parent company of the Luksic.

In their two subsidiaries in Paraguay, CCU and Enex have their managers as directors. In Bebidas del Paraguay there are four CCU executives, led by Patricio Jottar, general manager of the brewery since 1998. At Enex, representation is also parity: three for each group. Chileans do not repeat themselves. Two Paraguayans, yes. The Cartes’ henchmen.

One is Juan Carlos López Moreira, a business administration graduate from the Universidad Católica de Asunción, a former Coca-Cola executive whom the Cartes recruited for their beverage business. During the Cartes government, he was secretary general minister and chief of staff. Finished the government, he returned to the group. He is the main executive of the Cartes group, says a Chilean who knows the conglomerate.

The other is Francisco Barriocanal, who also went through Coca-Cola Paraguay. His LinkedIn says that he studied in Georgetown -where he is part of the university directory for Latin America-, that he, in 1999 joined the group at Tabacos del Paraguay and was CEO of Beverages from Paraguay from 2004 to 2021.

It also says something else: that he was an economy advisor for 5 years and five months of the government of Horacio Cartes, from 2013 to 2018, while he was general manager of the company that Cartes and CCU share.

The two executives are key in a diversified economic group that has a decade of alliances with the largest Chilean group. An alliance that is on the verge of ending.

With information from La Tercera