24 posts
TimePosted 01/02/2008 09:28:00

Leveraged deals

It looks like the fall in stock market valuations over the past couple of weeks may cause problems for some borrowers (but not all) in our sector in a number of debt financed deals.  Higher margin payments may have to be made as valuations decline.  Recent large debt financed deals (or where the outstanding amounts have been substantially raised in the sector) include French investment firm Wendel's investment in Saint Gobain, where it now has an appreciable 17% stake, and the recently increased holdings in Cimpor by Teixeira Duarte (20.5%) and Manuel Fino (20.0%).
The Wendel investment in Saint Gobain has the  makings of a long term investment, so there should not be any problems in any re-financing deal, although that said, Standard & Poor recently downgraded Wendel¹s credit rating to a BBB-minus from BBB, citing a decline in the share price of most of this investment companies assets, including a steady 30 per slide in Saint Gobain, one of its prized possessions.
Whether the two Portuguese investors in the above Cimpor deal are prepared to refinance their increased holdings over the longer term, is perhaps more doubtful, particularly as the Portuguese construction market is showing no signs of any recovery.  At the same time, with Lafarge heavily committed financially to the Orascom deal, it is also unlikely to be willing to spend any substantial amounts on increasing its own stake in Cimpor in the short term. So don't expect any seizmic shifts there for the time being.
Meanwhile, recent pronouncements by Cemex over its own funding status, in particular the recent Rinker deal indicates that its net debt, on the company's definition, more than trebled from US$5,811m to US$18,904m to give a gearing level of 101.19%, but if one includes the perpetual debt, it gives a true gearing ratio of more like 116%. High but not critical.

While the weaker US market has made Cemex lower the expected returns on its Rinker acquisition, this has now been partly compensated for by the recent sharp fall in US interest rates. Interesting to see how this balancing act will pan out.


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