Cement conferences for global cement industry

Cemex SAB is posting the biggest gains in Mexico's bond market on speculation a USD600 million payout from Venezuela in compensation for seized assets will help the cement maker meet loan covenants.

Yields on Cemex's dollar bonds due in 2016 plunged 141 basis points, or 1.41 per cent point, in the week ending yesterday, the most among Mexican corporate debt, to 13.92 per cent, according to data compiled. The average yield on Latin American dollar debt that shares Cemex's B rating fell 26 basis points during the same period to 13.86 per cent, Credit Suisse Group AG indexes show.

Investors are growing more confident Monterrey, Mexico- based Cemex will satisfy terms of a USD15 billion bank loan, avoiding a default, after it announced December. 1 the accord with Venezuelan President Hugo Chavez over a unit he seized in 2008 as part of a nationalization of the cement industry. Cemex had listed a book value of 6.7 billion pesos (USD493 million) for the Venezuelan assets at the end of the third quarter.

"They got something out of someone that you might have thought wouldn't give you anything," Guillermo Rodriguez, who helps manage USD5.5 billion at Corp. Actinver SAB, said in a telephone interview from Mexico City. "It's very positive. They're going to reach the covenant with a bit of a margin to spare."

Cemex's bonds yield 1,172 basis points more than Mexican government debt due in 2016, compared with 1,306 basis points on November. 30, according to data compiled. The rally in Cemex's securities is part of a rebound that's helped bring down yields on the bonds from a record high 21.79 percent on October. 4.

Banks can force Cemex, the largest cement maker in the Americas, into bankruptcy if the company is unable to cut its total funded debt relative to earnings before interest, taxes, depreciation and amortization below 7 times by year-end and 6.5 times by June. It reported a ratio of 7.2 times at the end of September.

The USD240 million cash payment that Cemex received as part of the settlement with Chavez alone may reduce the debt ratio by 0.1 times and could be "the factor that marks the difference" in reaching the covenant after other debt reduction measures, Dan McGoey, a Citigroup Inc. analyst based in Sao Paulo, said in an e-mailed research note.

The agreement also includes payment of USD360 million in bonds from state oil company Petroleos de Venezuela SA and the cancellation of USD154 million of accounts payable by Cemex subsidiaries to Cemex Venezuela.

The cash was deposited yesterday and the balance in bonds is pending, spokesman Jorge Perez said in telephone interview from New York.

The total settlement may reduce Cemex's debt-to-Ebitda ratio by 0.25 times, according to McGoey.

"Assuming they used all the money to reduce debt, that gets you" under the required limit, Joe Kogan, a debt analyst with Scotia Capital, said in a telephone interview in New York. "Given that they're so close, I could see how there would be a small impact."

Cemex predicted it would satisfy the loan covenant before it settled with Venezuela and now is more confident that it will meet its debt limits through the end of 2012, chief of communications and investor relations Maher Al-Haffar said.

"The Venezuela thing, I think, takes us quite a ways to heighten the level of confidence we have in" meeting covenants next year, Al-Haffar said in a December. 5 telephone interview from New York.

The company still plans to raise USD1 billion in asset sales through the first quarter of 2013, he said.

Cemex will terminate an arbitration proceeding with the World Bank's International Centre for Settlement it began following Chavez's seizure in December 2008 "subject to receiving full payment," spokesman Jorge Perez said in an e- mailed response to questions on December. 1. The company was seeking compensation of USD1.2 billion, Venezuela officials said on August. 19, 2008.

Chavez, who has seized assets in every industry from oil to telecommunications, also nationalized units from Lafarge SA, the world's biggest cement maker, and Holcim Ltd., the second- largest.

Eduardo Cortes, who helps manage USD1.4 billion of debt at Gia Partners LLC, said that while the agreement with Venezuela may help Cemex, the company is vulnerable to any slowdowns in Europe and the U.S. Europe generated 29 per cent of Cemex's revenue in 2010, compared with 24 per cent for Mexico. The U.S. accounted for 18 per cent of sales.

The U.S. economy will grow 1.8 per cent this year, compared with 3 per cent in 2010, according to the median estimate of 63 analysts surveyed. European Central Bank President Mario Draghi said November. 3 the region's debt crisis is hindering growth and pushing it toward a "mild recession by year-end."

"If the U.S. stays poor and becomes a higher cash strain, and Europe doesn't go anywhere, the rest of the operations will not be able to carry the debt load" for Cemex, Cortes said in a telephone interview in New York.

Concern slowing U.S. growth was crimping Cemex's earnings prompted Standard & Poor's to cut the company's credit rating on November. 9. S&P lowered Cemex's rating one step to B-, six levels below investment grade.

Cemex's credit rating was slashed seven levels by S&P over a five-month span ending March 2009 after the company boosted debt levels to pay for the USD14.2 billion acquisition of Rinker Group Ltd. in 2007. The Rinker purchase formed part of a two- decade, USD29 billion acquisition spree by Chairman and Chief Executive Officer Lorenzo Zambrano, 67, who's been head of Cemex since 1995 and whose grandfather founded the company in 1906.

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries fell two basis points to 222 at 4:33 p.m. in Mexico City, according to JPMorgan Chase & Co.

The peso fell 1.5 per cent to 13.7118 per U.S. dollar.

The cost to protect Mexican debt against non-payment for five years rose 10 basis points today to 150, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

Yields on interbank rate futures due in May rose three basis points to 4.79 per cent today.

Cemex posted a third-quarter net loss of USD822 million, up from USD89 million a year earlier. Sales rose 5.4 per cent to USD3.97 billion.

Cemex shares gained 8.2 per cent from the announcement of the settlement through yesterday. The shares trade at 0.4 times Cemex's 2010 reported book value, or assets minus liabilities, compared with an average ratio of 1.3 since March 1996, data compiled show.

"The management team is sending the message that it's doing everything possible to meet its obligations," Actinver's Rodriguez said. "This makes them a lot more comfortable."

INTERCEM - The world's leading international cement industry conferences.

Archived News

Upcoming Events

Media Partner