The Hidden Risks of Investing in State Companies: The PLUNA case in Uruguay.

The Leadgate case shows the high risks of investing in public business in South America. 

In 2007 Leadgate, an investment company owned by Matias Campiani, Sebastian Hirsch and Arturo Alvarez led a group of internationally renowned investor to acquire 75% of PLUNA, the Uruguay national airline. They completed an investment of 30 million dollars to transform the company. They had previous successful experience in  Uruguay (including an Harvard Business School case addressing one of their successes) but no one had alerted them of the political risks of investing into a company with governmental participation. 

Five years later, the company, which had grown revenues by 150% and significantly improved profitability, faced significant political challenges and interferences, which limited its ability to operate and overcome natural disasters. The internal and external policial conflict prevented PLUNA from accessing already arranged financing and equity, forcing Leadgate to return its 75 percent stake in Pluna to the Uruguayan government on June 15, 2012, for one dollar. 

For no valid reason a criminal judge indicted the three owners of Leadgate and sent them to jail between 5 months to one year and 5 months waiting for a trial.  Read details in New York Times article An Airline Investment in Uruguay Becomes a Catch-22 .
Moreno Ocampo was contracted to analyze the possible violations of the inter-american convention of human rights during the provisional detention of the three business men. After reviewing the case it became evident that the detention had no valid foundations and violated basic human rights agreements Uruguay was party to. Moreno Ocampo stated at the time that the case was “purely political deception... the government has nothing against them. They went to jail for no reason.”

Five years after the takeover of PLUNA by the government, no criminal charges have been filed. Confirming that Leadgate administration was honest and efficient, the bankruptcy procedures determined that there was no responsibility of the ex-directors in the demise of the airline, and that assets that were liquidated were enough to pay all the creditor debt.