Cemex SAB debt tumbled, sending the yield on the benchmark bonds to a record high, as Standard & Poor’s said it may cut the rating on the largest cement maker in the Americas and a weaker peso dimmed the outlook for profit.
The yield on Cemex 9 percent dollar bonds maturing in 2018 surged 304 basis points this week, or 3.04 percentage points, to 16.83 percent today, according to prices compiled by Bloomberg. The $1.65 billion of bonds were first sold in January.
S&P put Cemex’s B rating, five steps below investment grade, on a watch for a possible downgrade, saying it expects the company’s financial performance to remain “weak” because of lower global economic growth. A 15 percent decline in the Mexican peso since the beginning of August is putting pressure on Cemex’s finances, said Vanessa Quiroga, an analyst with Credit Suisse Group AG in Mexico City, in a report today.
“Cemex is not in a favorable situation, generating only $450 million of annual cash flow and a debt balance of $17 billion,” Quiroga said. “Doing a simple division, it would take Cemex about 38 years to pay it off.”
The company is barred from entering currency hedges under a financing agreement with banks, Quiroga said, reducing dollar profits from Mexico, where Credit Suisse forecasts the company will get 60 percent of its total earnings before interest, taxes, depreciation and amortization in 2011.
Cemex reached a $15 billion financing agreement with banks in August 2009 to avoid default after the recession reduced profit. The company has paid about half the loan, which comes due in 2014, by selling shares, bonds and assets.
Jorge Perez, a spokesman for Cemex in Monterrey, Mexico, declined to comment.