Cemex Selling Asset-Backed Bonds in Return to Local Market: Mexico Credit
Cemex SAB, the largest cement maker in the Americas, is selling asset-backed debt for the first time in two years to obtain lower yields as slumping demand for building materials drives up its benchmark borrowing costs.
The company, based in Monterrey, Mexico, may sell 2.5 billion pesos ($214 million) of bonds backed by accounts receivable this month to yield as much as 80 basis points more than the 28-day interbank lending rate, or about 5.6 percent, said Alonso Madero, who helps oversee $5.5 billion of debt at Corp. Actinver SAB in Mexico City. It would have to pay a rate as high as 7.8 percent if the securities weren’t backed by assets, Madero said.
Cemex is tapping credit markets as growth in the U.S., the company’s biggest foreign market, slows and Europe’s debt crisis curbs demand for higher-yielding assets. The company paid a yield premium of 97 basis points over existing notes to revive an overseas sale on July 6 that it scrapped last month. Cemex is the biggest Mexican issuer of debt abroad this year as it seeks to repay a $15 billion bank loan refinancing in 2009 that helped it stave off default.
“I don’t think it’s the best moment, above all because of the great volatility out there and the uncertainty that’s being generated from Europe,” Mario Copca, an analyst at Vanguardia Casa de Bolsa SA in Mexico City, said in a telephone interview.
Cemex sold $650 million more of its notes maturing in 2018 to yield 9.5 percent last week, fueling a tumble in the secondary market. The yield on the outstanding bonds climbed to 8.9 percent the day the new notes were sold from 8.5 percent on July 5, according to data compiled by Bloomberg. Mexican government debt due in 2019 yields 3.72 percent, while similar- maturity bonds sold by Holcim Ltd., the world’s second-biggest cement maker, offer a rate of 4.64 percent.
Cemex issued 2.2 billion pesos of asset-backed debt in July 2009, the company’s last sale in the local market, and paid 250 basis points over Mexico’s 28-day interbank rate. The bonds, sold through a trust fund that controls accounts receivables from two Cemex units in Mexico, were rated AAA on the local scale, the highest investment grade, by Standard & Poor’s. Cemex’s local rating is now BB+, 10 levels lower.
The peso bond sale in July 2009 was given S&P’s highest rating because the trust fund that services the debt has first priority on sales from Cemex’s customers, said Mauricio Tello, an analyst at S&P in Mexico City.
“This rating isn’t linked at all to Cemex’s rating,” Tello said in a telephone interview.
The proposed sale hasn’t been rated.
Actinver’s Madero said he expects Cemex’s peso sale to receive a rating of AAA.
“Having an AAA rating gives you a much lower interest rate,” he said in a telephone interview.
Cemex’s foreign-currency 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. S&P rates Cemex debt B, or five levels below investment grade.
The company will use proceeds of the five-year offering to refinance 2.2 billion pesos of debt from its 2009 sale, said Maher Al-Haffar, Cemex’s communications director. The securities mature in December.
“It’s an interesting market and we haven’t been to it for a while, and it’s very competitive in terms of cost of capital,” Al-Haffar said in a telephone interview.
The extra yield investors demand to hold Mexican dollar bonds instead of U.S. Treasuries widened two basis points today to 144, according to JPMorgan Chase & Co.
The cost to protect Mexican debt against non-payment for five years was unchanged at 115 basis points, 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 Mexican currency fell 0.2 percent to 11.7420 pesos per dollar.
Yields on futures contracts for the 28-day TIIE interbank rate due in March fell three basis points to 5.03 percent, indicating traders expect the central bank to raise the rate that month.
Cemex has raised $2.45 billion from international bond sales this year, the most by a Mexican company, to repay debt, according to data compiled by Bloomberg. The company has paid back about half of the $15 billion bank loan and is ahead of schedule to avoid increases in interest rates under the agreement, according to the company. It has also raised money by selling shares and shedding assets.
“Cemex has been consistently active in the capital markets since the refinancing agreement,” Andrew Belton, a fixed-income analyst with CreditSights Inc. in London, said in a telephone interview. “They’re trying to take advantage of the significant demand for Cemex paper.”
A housing slump has curbed Cemex’s profits in the U.S., which is its largest foreign market. Cemex’s annual sales in the U.S. plummeted to $2.49 billion in 2010 from $4.9 billion in 2007 and operating cash flow -- or Ebitda -- turned to a loss of $44.9 million in 2010 from a gain of $1.12 billion in 2007.
Investors are also concerned Europe’s debt crisis could cut into Cemex revenue, Vanguardia’s Copca said. The region accounted for 34 percent of Cemex’s sales in 2010.
Actinver’s Madero said he owns the asset-backed peso bonds Cemex sold in 2009 and will likely skip the new offer if the yield spread drops more than 100 basis points from the initial offering.
“For me to sacrifice my liquidity with such an uncertain panorama as we have now, they have to give me a super premium,” Madero said.
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