The deal, which Cemex expects to complete by Dec. 7, includes a cash payment of $240 million and $360 million in bonds issued by state oil company Petroleos de Venezuela SA, the Mexican cement maker said today in a filing to Mexico’s stock exchange. The cement maker is struggling to cut debt to meet the terms of a $15 billion loan obtained in 2009.
“We wonder if Cemex’s financial problems have made it more willing to accept a lower offer,” Joe Kogan, an analyst at Scotia Capital in New York, said today in an e-mailed note to clients. “In 2008, Cemex turned down Venezuela’s compensation offer of $650 million, arguing that this compensation was too small.”
Chavez took over Venezuela’s cement industry in 2008, citing failures to sufficiently supply the local market. Assets were seized from Cemex, Holcim Ltd. (HOLN) and Lafarge SA. (LG) Cemex, the largest cement maker in the Americas, filed for arbitration with the World Bank’s International Centre for Settlement of Investment Disputes in December, 2008, when Venezuelan officials said Cemex was seeking $1.2 billion in compensation.
The arbitration proceedings will be terminated “subject to receiving full payment,” Jorge Perez, a Cemex spokesman, said today in an e-mailed response to questions.
“We will get the cash and bonds on Dec. 7, as filed,” said Perez. “The $360 million is what you will get from interest payment and principal repayment in a four year period.”
The current value of the bonds would be below $360 million if Cemex divests the bonds right away, Mike Betts and Sam Cullen, equity analysts at Jefferies International Ltd., said today in an e-mailed note to clients.
Yields on Cemex’s dollar bonds due in 2018 tumbled 86 basis points, the most in a month, to 15.74 percent.
Cemex rose 0.9 percent to 6.40 pesos at the close of trading in Mexico. The shares trade at 0.3 times Cemex’s 2010 reported book value, or assets minus liabilities, compared with an average ratio of 1.3 since March 1996, data compiled by Bloomberg show.
Venezuelan Industry Minister Ricardo Menendez signed the agreement yesterday in Caracas with Jaime Elizondo, Cemex’s president for South America and the Caribbean, the Information Ministry said today in a statement.
“It’s in the minimum range of what was expected,” Carlos Gonzalez, head of equity research at Monex Casa de Bolsa, a Mexico City-based brokerage, said today in a telephone interview. “This is preferable to nothing. The settlement could have gone on much longer.”
The settlement includes the cancellation of $154 million of accounts payable by Cemex subsidiaries to Cemex Venezuela, the Mexican company said today in a statement.
The compensation package buoys the cement maker’s finances at a time when it’s struggling to cut debt to meet the terms of a $15 billion loan obtained in 2009, even if the amount of the settlement missed expectations, Monex Casa de Bolsa’s Gonzalez said.
“While it’s negative in the sense that they’re paying less than what Cemex thought their assets were worth, it’s not so bad in the sense that Cemex needed money,” said Gonzalez. “This gives the company resources to meet its short-term obligations. It’s a relief for the company.”
“They felt like they got a good deal with Cemex. Maybe that’s why they decided to go ahead and pay rather than do what they do with all the other cases, which is just delay,” Scotia Capital’s Kogan said today in a telephone interview.
The Washington-based ICSID, as the World Bank arbitration court is known, is currently overseeing 20 cases filed against Venezuela’s government for billions of dollars in damages from seized mining, oil and industrial assets, according to the agency’s website.
Exxon Mobil Corp. (XOM), the largest oil company in the world, last year reduced its arbitration claim for seized oil assets against PDVSA, as the Caracas-based company is called, to $7 billion from $12 billion. Venezuelan Oil Minister Rafael Ramirez in September said that Venezuela was willing to pay Exxon $1 billion in compensation.
Paying for Assets
Venezuela’s agreement to pay Cemex may signal that the country is at least willing to make payments for some nationalized assets, especially when other countries like Argentina rarely end up paying for assets in arbitration, Daniel Kerner, a Latin America analyst at Eurasia Group, said today in a telephone interview from Buenos Aires.
“Venezuela has ended up paying in a lot of these cases,” said Kerner. “Even with Exxon and ConocoPhillips (COP), Venezuela has said they would pay. How much and how, that remains unknown.”
To contact the editor responsible for this story: Dale Crofts at email@example.com