Bloomberg News

Cemex Offering Revival Sparked by Market Rebound: Mexico Credit

July 08, 2011

July 8 (Bloomberg) -- Cemex SAB, the largest cement maker in the Americas, has become the biggest Mexican issuer of debt overseas this year after reviving a sale it scrapped last month as Europe’s debt crisis roiled global markets.

The company sold $650 million of its notes due in 2018 on July 6, pushing issuance this year to $2.45 billion, according to data compiled by Bloomberg. The company sold the bonds to yield 9.5 percent, or 471 basis points more than similar- maturity bonds sold by Holcim Ltd., the world’s second-biggest cement maker. The Monterrey, Mexico-based company pulled an eight-year offering of the same size and at the same yield on June 23, citing “volatility” in global markets.

Cemex’s bond sale is part of a rebound in international debt offerings by Latin American companies after Greece obtained a rescue package to avoid default, sparking a recovery in demand for higher-yielding assets. The company, weakened by the slump in the U.S. housing market, is stepping up bond sales to repay obligations stemming from a $15 billion bank loan refinancing in 2009 that allowed it to continue servicing debt.

“Waiting for a shift in sentiment obviously enabled them to get an issue off,” Michael Roche, an emerging-market strategist at MF Global in New York, said in a telephone interview. “It was a success. The window of opportunity was provided by the interlude that we’re now going through with the European Union sovereign finance crisis.”

Latin American companies have sold $1.46 billion of overseas debt so far in July, compared to $48 million in the same period last month, according to data compiled by Bloomberg.

U.S. Recovery

Cemex sold the notes to yield 574 basis points more than Mexican government bonds due in 2019, according to data compiled by Bloomberg. Yields on the company’s bonds surged 16 basis points to 9.12 percent on June 23 amid concern Greece would be the first country in the euro area to default. A basis point is 0.01 percentage point.

Citigroup Inc. managed the sale.

The euro area approved its share of a 12 billion-euro ($17 billion) aid payment for Greece on July 2 and pledged to complete work on a second rescue package.

Signs the U.S. economy, Cemex’s biggest foreign market, is rebounding also helped boost demand for the bonds, according to Natalia Corfield, a corporate bond analyst at ING Groep NV in New York. Cemex got about 15 percent of its $3.4 billion of revenue in the first quarter from the U.S. market.

Orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011, the Commerce Department said July 5. Companies in the U.S. added twice as many workers as forecast in June, signaling an improvement in the labor market that may help bolster the economy in the second half of the year.

‘Huge Concession’

“It was the external backdrop that changed,” Corfield said in a telephone interview. “It was at the peak of the Greek concern” when Cemex first tried to sell the bonds, she said.

The yield on 10-year Greek bonds fell two basis points to 16.86 percent since Cemex pulled its sale on June 23. It climbed 17 basis points today. The extra yield investors demand to buy emerging-market corporate dollar debt rather than U.S. Treasuries has narrowed to 280 basis points from 309 in the period since the first planned sale, according to JPMorgan.

While Cemex succeeded in obtaining the financing, it paid a rate on the bonds that was 97 basis points over their July 5 secondary-market yield to lure investors. The additional supply sparked a plunge in the bonds in the past two days, pushing the secondary-market yield up to 8.94 percent from 8.53 percent, according to data compiled by Bloomberg.

‘Huge Concession’

“They’re burning a lot of bridges,” Jack Deino, who oversees about $1.8 billion in emerging-market debt at Invesco Inc., said in a telephone interview from New York. “To get this deal done, they made a huge concession. They knocked their curve out of bed.”

Jorge Perez, a Cemex spokesman in the Monterrey suburb of San Pedro Garza Garcia, declined to comment.

The extra yield investors demand to hold Mexican dollar bonds instead of U.S. Treasuries widened nine basis points to 135, according to JPMorgan.

The cost to protect Mexican debt against non-payment for five years climbed two basis points to 108, according to CMA. 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.

The peso fell 0.7 percent to 11.6256 per dollar.

Yields on futures contracts for the 28-day TIIE interbank rate due in February fell three basis points to 5.01 percent, indicating traders expect the central bank to raise the rate that month.

Rate Outlook

Mexican central bankers left the lending rate at a record low 4.5 percent today. Mexico is the only major Latin American country to keep borrowing costs unchanged in the past year.

Cemex’s rating was cut seven levels by S&P over a 10-month span ending August 2009 after the company boosted debt levels to pay for the $14.2 billion acquisition of Rinker Group Ltd. in 2007. The Rinker purchase formed part of a two-decade, $29 billion acquisition spree by Chief Executive Officer Lorenzo Zambrano, whose grandfather founded the company in 1906.

Investors demanded a record 2,330 basis points to insure Cemex debt against non-payment in December 2009, according to credit-default swaps pricing provided by CMA. That has cost declined to 620 basis points. S&P has lifted the company’s rating to B, or six levels below its peak in 2007.

Under the 2009 refinancing agreement with banks, Cemex had to sell shares, shed assets, accept limits on capital expenditures and acquisitions, and meet financial ratios or face increases in interest rates on its debt. The company cut its debt by $5.9 billion from June 2009 to $17.7 billion at the end of last year.

--With assistance from Boris Korby in New York. Editors: Lester Pimentel, Jonathan Roeder

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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