The credit ratings of Mexican cement giant Cemex SA (CX) were lifted further into investment-grade territory Thursday by Standard & Poor’s following the "successful integration" of the RMC Group of the UK. S&P raised Cemex’s long-term corporate and senior unsecured debt ratings one notch to triple-B, with a similar adjustment in the company’s long-term national scale ratings to "mxAA+."
"The rating action reflects the strong financial performance of Cemex during 2005 and the successful integration of RMC’s operations into the Cemex system," S&P analyst Jose Coballasi said in a release. The ratings agency put the company’s rating on review for a possible downgrade into junk territory in September 2004 after the deal was announced to purchase RMC for US$5.8 bn in cash and debt. The rating was reaffirmed a few months later, however.
When the acquisition was completed in March 2005, it initially pushed Cemex’s ratio of net debt over earnings before interest, taxes, depreciation and amortization, or EBITDA, to 3.2 times. Since then, the company has paid off $1.77 billion in debt, to bring its net-debt-to-EBITDA ratio down to 2.4 times by the end of 2005.
Last month, the world’s biggest supplier of ready-mix concrete and No. 3 cement maker raised its full-year target for free cash flow to $2.5 billion from $2.4 billion and pledged to use that money to reduce debt further in the absence of acquisitions. Coballasi said the new ratings don’t take into account "major" debt-financed acquisitions, but added that "they leave room for investments in expansion CAPEX and bolt-on acquisitions in excess of its free operating cash flow generation."