Cemex Drops as Morgan Stanley Says It May Post Loss

Cemex Drops as Morgan Stanley Says It May Post Loss
Published: 15 December 2008

Cemex SAB fell to a one-week low in New York trading after Morgan Stanley said the largest cement maker in the Americas may report its first quarterly loss since at least 1996 in the fourth quarter.

Cemex’s American depositary receipts plunged 5.5 percent to $8.16, bringing its two-day decline to 25 percent, the steepest since Oct. 16. The Mexican company may post a loss of 7 cents a share including a $431 million loss on derivatives, Morgan Stanley analyst Nicolai Sebrell wrote.

The San Pedro Garza Garcia, Mexico-based company hasn’t posted a quarterly loss since at least the first quarter of 1996, data compiled by Bloomberg showed. Analysts expect a profit of 12 cents per ADR, according to the average estimate of six analysts.

Jorge Perez , a spokesman for Cemex, declined to comment on the report. Cemex is scheduled to provide a fourth-quarter forecast on Dec. 15.

Sebrell estimates Cemex will record a $209 million deficit on derivatives contracts tied to equities, a $155 million loss on currencies and a $67 million deficit on interest rates.

"Fourth quarter 2008 looks like the end of the derivatives story as important risk positions have been unwound," Sebrell wrote. "The prospect of an end of the derivatives saga is a positive catalyst and valuation is not unreasonable. However, debt refinancing, weak fundamentals, and a disappointing fourth- quarter result are all overhangs that keep us equal-weight."

The company on Dec. 10 said it was able to swap only about 17 percent of the short-term it had offered to refinance. The company has more than $6 billion in debt maturing by the end of 2009 and said it hired five banks to help it finance the debt.

Cemex will need to take further steps to restructure its debt as the company failed to exchange the bulk of its short-term bonds for longer dated securities, Banco Santander SA said today.

"Cemex needs a much more significant debt restructuring, which a group of banks are already working on, and we expect more news about debt-restructuring before the end of 2009," Santander analyst Gonzalo Fernandez wrote in a note. "Nevertheless, this would imply a higher cost of debt for Cemex going forward."

The ADRs have lost 65 percent this year, compared with a 41 percent drop for the Standard & Poor’s 500 Index and a 28 percent decline in Mexico’s Bolsa index. The Mexican stock market is closed for a holiday.