Bloomberg News

Cemex Withdraws $650 Million Overseas Bond Sale: Mexico Credit

June 23, 2011

June 23 (Bloomberg) -- Cemex SAB, the largest cement maker in the Americas, scrapped a $650 million bond offering today as Europe’s debt crisis eroded demand for higher-yielding debt and undermined the company’s efforts to refinance bank loans.

The company pulled the sale of eight-year bonds because of “volatility” in global markets, said Jorge Perez, a spokesman for the Monterrey, Mexico-based company. The yield on Cemex’s benchmark dollar bonds due in 2020 jumped 40 basis points, or 0.40 percentage point, to 9.74 percent at 5 p.m. New York time, the highest since October. The extra yield investors demand to own emerging-market corporate debt instead of U.S. Treasuries widened 9 basis points to 330, according to JPMorgan Chase & Co.

Cemex, battered by a slowdown in the U.S., its biggest foreign market, had planned to sell the bonds to repay debt stemming from a $15 billion bank loan refinancing in 2009 that helped it avoid default. The company needs to pay back $200 million of debt by yearend to prevent the interest rate on $7.6 billion of loans from rising by 50 basis points.

“The underlying tone that Greece has created and the follow-on risk avoidance behavior has made it more difficult for higher-yielding companies to sell bonds,” Michael Roche, an emerging-market strategist at MF Global in New York, said in a telephone interview. “Investors are pausing right now to go through their portfolios and evaluate their holdings.”

The company was offering the bonds to yield 9.5 percent, said a person familiar with sale who asked not to be identified because he’s isn’t authorized to speak publicly. The notes would have yielded about 581 basis points more than Mexican government notes due in 2019, according to data compiled by Bloomberg. Similar-maturity bonds sold by Holcim Ltd.’s, the world’s second-biggest cement maker, yield 4.70 percent.

Housing Slump

“Given the current volatility and unfavorable performance of markets, we have decided not to pursue the transaction,” Perez said in a telephone interview. “We were prepared to access the debt capital markets in order to continue addressing maturities ahead of schedule.”

Cemex is the second-biggest Mexican issuer of overseas debt this year after Grupo Financiero BBVA Bancomer SA, according to data compiled by Bloomberg.

Cemex cut its forecast for growth of U.S. cement and ready- mix concrete shipments to “low to mid-single digit” this year, from 5 percent for cement and 6 percent for concrete in February, Chief Financial Officer Fernando Gonzalez said on April 29.

The recovery in the U.S. housing industry “remains a work in progress,” Gonzalez said on a conference call that day.

U.S. Housing

The S&P/Case-Shiller index of property values in 20 U.S. cities fell 3.6 percent in March from a year earlier, the biggest year-over-year decline since November 2009. Purchases of previously owned homes dropped to a 4.81 million annual pace in May, the slowest in six months.

Since Cemex obtained a $15 billion bank loan to head off default in August 2009, the company has sold shares, issued bonds and sold assets to refinance about half of the loan. In April, the company said it needs to refinance $200 million more of its bank financial agreement to prevent the interest rate on the loan from rising to 500 basis points over the London interbank offered rate, or Libor. The company is currently paying 450 basis points over Libor.

“We thought that the steps they had taken were good ones and are supportive of the bonds,” said Ward Brown, who manages about $11 billion of emerging-market debt, including Cemex bonds, at Massachusetts Financial Services.

Yield Spread

Chief Executive Officer Lorenzo Zambrano, whose grandfather founded the 105-year-old company, boosted Cemex’s debt levels after making $29 billion in global acquisitions over two decades. Its rating was cut seven levels by S&P in a 10-month span ending August 2009 after Cemex boosted debt levels to pay for the $14.2 billion acquisition of Rinker Group Ltd. in 2007.

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries widened nine basis points to 151, according to JPMorgan.

The peso fell 0.6 percent to 11.8625 per dollar.

Yields on futures contracts for the 28-day TIIE interbank rate due in December fell two basis points to 4.94 percent.

The cost to protect Mexican debt against non-payment for five years rose five basis points to 115, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.


Mexico’s economy grew 4.6 percent in the first quarter, less than the 5 percent median forecast in a survey by Bloomberg.

“It’s not about Mexico or Cemex -- it’s about the global situation,” Vinicius Pasquarelli, an emerging-market debt trader at Tradition Asiel Securities, said in a telephone interview from New York. “We are facing a credit crisis that has frozen the fixed-income market.”

Federal Reserve officials yesterday cut their growth forecasts for the U.S. economy this year and next and raised their estimates for the unemployment rate. The world’s biggest economy, the destination for 80 percent of Mexico’s exports, will expand by 2.7 percent to 2.9 percent this year, down from April’s forecasts of 3.1 percent to 3.3 percent, based on the median range of projections.

“For Cemex, what’s going to move it or break it is the recovery of the construction market in the U.S.,” Jack Deino, who oversees about $1.8 billion of emerging-market debt at Invesco Inv. in New York, said in a telephone interview.

--With assistance by Andres R. Martinez in Mexico City and Sapna Maheshwari, Bryan Gibel and Boris Korby in New York. Editors: Lester Pimentel, Jonathan Roeder

To contact the reporters on this story: Veronica Navarro Espinosa in New York at; Thomas Black in Monterrey at

To contact the editor responsible for this story: David Papadopoulos at

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