Cemex falls on debt swap , profit concerns

Cemex falls on debt swap , profit concerns
Published: 12 December 2008

Cemex  fell the most in 11 years in Mexico City after the company failed to refinance some debt and analysts predicted “very weak” results this quarter as the economy slowed.

Cemex slid the most in the Bolsa Index, losing 19 percent to 11.42 pesos. It was the first decline in eight days and the biggest drop since October 1997, when the Asian financial crisis sparked a rout in global stock markets.

The company yesterday exchanged about 17 percent of the debt it had offered to refinance, a result that is “bad news,” said Francisco Suarez, head of equity research at brokerage Actinver SA in Mexico City. Cemex has more than $6 billion in debt coming due by the end of 2009 and said it hired five banks to help it refinance as the credit crunch froze debt markets in September.

“The exchange process is a kind of barometer for how creditors see the company,” Suarez said in a phone interview. “It tells you something.”

The San Pedro Garza Garcia, Mexico-based company’s new priority is reducing debt by using cash and proceeds from sales of assets, the Wall Street Journal reported in a story today, citing Hector Medina, an executive vice president of the company.

Cemex faces declining demand in both Mexico and the U.S., its biggest market. Mexico may be the only Latin American economy to suffer a recession next year, because of its ties to the U.S., which buys about 80 percent of exports, Citigroup Inc. said.

The Mexican company may report “very weak” earnings in a preliminary forecast Dec. 15, Banco Santander SA analyst Gonzalo Fernandez wrote in a research note today.

‘Cautious View’

“We maintain a cautious view on the stock, as the outlook for cement markets in the U.S., Spain and U.K. remains negative until 2010,” Fernandez wrote.

Cemex earnings before interest, taxes, depreciation and amortization may drop 19 percent in the fourth quarter from a year earlier, he wrote.

“The quarterly data should confirm that the weakness is greater than expected, they could disappoint at the operating level,” Suarez said. Net income may decline as the company recognizes a decline in the value of its acquisitions, he said.

Cemex bought Australia’s Rinker Group Ltd. in 2007 for $14.2 billion, boosting its debt just as cement demand slowed in its biggest markets.

The company said yesterday it exchanged 970.4 million pesos ($72.3 million) of local bonds in two offers as it tries to refinance medium-term debt. The bonds mature in September 2011.

Slowing Economy

Mexico’s economy may shrink 0.2 percent next year, Citigroup analysts said. Citigroup has a “neutral” recommendation on Mexican stocks.

In the U.S., initial unemployment claims surged more than forecast last week to a 26-year high, Labor Department data showed. Cemex gets about a quarter of its revenue from the U.S.

Today’s losses snapped a three-day, 41 percent rally after U.S. President-elect Barack Obama said he planned the biggest infrastructure spending program since the 1950s, potentially boosting cement demand. Cemex shares have fallen 58 percent this year, compared with a 28 percent decline for the Bolsa Index.