Cemex offering revival sparked by Europe rebound

Cemex offering revival sparked by Europe rebound
Published: 08 July 2011

Cemex SAB, the largest cement maker in the Americas, has become the biggest Mexican issuer of debt overseas this year after an easing of the European debt crisis allowed the company to revive a sale it scrapped last month.

The company sold US$650m of its notes due in 2018 on 6 July, pushing issuance this year to US$2.45bn, according to data compiled by Bloomberg. The company sold the bonds to yield 9.5%, or 462 basis points more than similar maturity bonds sold by Holcim Ltd, the world’s second-largest cement maker.

The Monterrey, Mexico-based company pulled an eight-year offering of the same size and at the same yield on 23 June, citing "volatility" in global markets.

Cemex’s bond sale is part of a rebound in international debt offerings by Latin American companies after Greece obtained a rescue package to avoid default, sparking a recovery in demand for higher-yielding assets. The company, weakened by the slump in the US housing market, is stepping up bond sales to repay obligations stemming from a US$15bn bank loan refinancing in 2009 that allowed it to continue servicing debt.

"Waiting for a shift in sentiment obviously enabled them to get an issue off," Michael Roche, an emerging-market strategist at MF Global in New York, said in a telephone interview. "It was a success. The window of opportunity was provided by the interlude that we’re now going through with the European Union sovereign finance crisis."

Latin American companies have sold US$1.46bn of overseas debt so far in July, compared to US$48m in the same period last month, according to data compiled by Bloomberg.

Cemex sold the notes to yield 571 basis points more than Mexican government bonds due in 2019, according to data compiled by Bloomberg. Yields on the company’s bonds surged 16 basis points to 9.12% on 23 June amid concern Greece would be the first country in the euro area to default. A basis point is 0.01% point. The euro area approved its share of a €12bn (US$17bn) aid payment for Greece on 3 July and pledged to complete work on a second rescue package.

Signs the US economy, Cemex’s biggest foreign market, is rebounding also helped boost demand for the bonds, according to Natalia Corfield, a corporate bond analyst at ING Groep NV in New York. Cemex got about 15% of its US$3.4bn of revenue in the first quarter from the US market.

Orders placed with US factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011, the Commerce Department said 5 July. Companies in the US added twice as many workers as forecast in June, signalling an improvement in the labour market that may help bolster the economy in the second half of the year.

"It was the external backdrop that changed," Corfield said in a telephone interview. "It was at the peak of the Greek concern" when Cemex first tried to sell the bonds, she said. The yield on 10-year Greek bonds has fallen 19 basis points to 16.69% since Cemex pulled its sale on 23 June.

While Cemex succeeded in obtaining the financing, it paid a rate on the bonds that was 97 basis points over their 5 July secondary-market yield to lure investors. The additional supply sparked a plunge in the bonds in the past two days, pushing the secondary-market yield up to 8.94% from 8.53%, according to data compiled by Bloomberg.

"They’re burning a lot of bridges," Jack Deino, who oversees about US$1.8bn in emerging-market debt at Invesco Inc, said in a telephone interview from New York. "To get this deal done, they made a huge concession. They knocked their curve out of bed."

Cemex’s rating was cut seven levels by S&P over a 10-month span ending August 2009 after the company boosted debt levels to pay for the US$14.2bn acquisition of Rinker Group Ltd in 2007. The Rinker purchase formed part of a two-decade, US$29bn acquisition spree by CEO Lorenzo Zambrano, whose grandfather founded the company in 1906.

Investors demanded a record 2330 basis points to insure Cemex debt against non-payment in December 2009, according to credit-default swaps pricing provided by CMA. That cost declined to 620 basis points yesterday. S&P has lifted the company’s rating to B, or six levels below its peak in 2007.

Under the 2009 refinancing agreement with banks, Cemex had to sell shares, shed assets, accept limits on capital expenditures and acquisitions, and meet financial ratios or face increases in interest rates on its debt. The company cut its debt by US$5.9bn from June 2009 to US$17.7bn at the end of last year.