Investors look beyond Cemex woes to debt

Investors look beyond Cemex woes to debt
Published: 18 December 2008

Reuters:  Investors looked past slumping sales at Cemex, and snapped up the stock on Tuesday on optimism the company would refinance its looming debt payments.

The shares of the Monterrey-based cement producer (CMXCPO.MX: Quote, Profile, Research)(CX.N: Quote, Profile, Research) surged 8.68 percent on the Mexico City stock exchange and 9.28 percent in New York in midday trading on Tuesday, despite weak fourth quarter result forecasts on Monday night.

Cemex, which is facing a sharp slowdown in its top market, the United States, has $6 billion in debt maturities due in 2009. It said in its fourth-quarter guidance it hopes to wrap up a debt restructuring by the end of January.

"The announcement that it could complete the debt restructuring in January is pushing the stock, although eventually people will see sense," said Carlos Hermosillo, an analyst at the Vector brokerage in Mexico City.

Cemex has a net debt of $16.4 billion and investors worry it is highly leveraged at a time of tight credit.

Cemex also suffered the expropriation of its Venezuela assets by President Hugo Chavez and is embroiled in litigation to win compensation.

Investors dumped the stock after Cemex failed in its bid to lengthen maturities on $418 million in commercial paper.

But many appear to believe Cemex is not heading toward default after Rodrigo Trevino, Cemex’s chief financial officer, said in the guidance statement that it was moving toward a debt refinancing, even if he did not give details.

 "Cemex is suffering a major liquidity problem and not one of solvency," said UBS analyst Gordon Lee. "We believe that Cemex should be able to reach terms with its banks."

Under the terms of the refinancing, Cemex would maintain its debt at 3.5 times its EBITDA, or earnings before interest, tax, depreciation and amortization, to show banks it can gradually reduce its debt.

Merrill Lynch analyst Carlos Peyrelongue said banks "would get a higher interest rate, additional guarantees that in the event of default would improve collection and an increased likelihood of getting money back as Cemex would have more time to generate free cash flow and sell assets."

Cemex’s troubles stem from its takeover last year of Australia’s Rinker, which increased the Mexican company’s presence in the United States just as the U.S. housing market slumped and sparked a recession in the world’s top economy.