Cemex Weighs Bond Sales Amid Bid for Investment Grade

Cemex SAB, the largest cement maker in the Americas, is studying new bond offerings as it seeks to cut interest costs, extend debt maturities and win back its investment grade rating.

“We’re watching the rates, the liquidity of the markets and we’re prepared to take advantage of the changes,” said Jose Antonio Gonzalez, the company’s newly appointed chief financial officer, in a telephone interview. “One of the opportunities Cemex has is to continue strengthening its finances.”

The Monterrey, Mexico-based company is seeking to lower debt costs after a March sale of $1 billion of 6 percent notes maturing in 2024 and 400 million euros ($547 million) of 2021 bonds with a 5.25 percent coupon. In April, it bought back $1.08 billion in notes paying interest rates of at least 9 percent.

Refinancing more debt with lower-paying bonds would bolster Cemex’s efforts to win back an investment grade rating as Chief Executive Officer Fernando Gonzalez targets profit gains in the U.S. and Mexico. Exiting junk status is the cement maker’s top priority, the CEO said yesterday at his first press conference since taking the job last week after the death of long-time leader Lorenzo Zambrano.

“We’re 100 percent focused on recovering our investment-grade rating,” Gonzalez, the CEO, said yesterday. “Nothing we do can be out of line with that goal.”

Credit Rating

The company lost its rating in 2009, two years after the $14.2 billion purchase of Rinker Group Ltd. increased Cemex’s exposure to the U.S. just as the housing industry was collapsing. It flirted with default in 2009 before reaching terms with lenders.

Standard & Poor’s raised Cemex’s long-term credit rating twice last year and currently grades it as B+, or four steps below investment quality.

CEO Gonzalez and newly appointed Chairman Rogelio Zambrano, a cousin of Lorenzo Zambrano, delivered a message of continuity at yesterday’s press conference. The company is benefiting from the U.S. housing recovery and stepped-up government spending in Mexico as it seeks to halt 18 straight quarterly net losses. The U.S. and Mexico are its largest markets.

The Mexican company would be open to any strategic options that it thinks will generate value for shareholders, including mergers and acquisitions, and it may also seek to invest in some assets with partners to avoid falling further in debt, the pair said.

Dominant Leader

Gonzalez, previously CFO, and Zambrano -- a cousin to Lorenzo Zambrano and a board member since 1987 -- were appointed six days ago after Lorenzo Zambrano’s death on May 12 in Madrid. He had served 29 years as CEO, including the last 19 as chairman.

Jose Antonio Gonzalez was named as the new finance chief today. He is a 16-year company veteran who has reported to Fernando Gonzalez since 2009. The two aren’t related.

The cement maker also announced today the creation of a system of six executive vice president posts, including the CFO, and said it will maintain six regional presidents who report directly to the CEO and oversee operations in Mexico, the U.S., northern Europe and other areas.

Cemex rose 0.6 percent to 16.24 pesos at the close in Mexico City. While the stock has dropped 1.6 percent since Lorenzo Zambrano’s death, the shares are still up 10 percent this year. That compares with a 2.1 percent decline for the benchmark IPC index of 35 Mexican stocks.

Incremental Profit

“The Cemex turnaround is happening,” said Carlos Peyrelongue, a Bank of America Corp. analyst in Mexico City. “They need to focus on the U.S. and Mexico because those are the two areas where incremental Ebitda the next three years is going to come from.” Peyrelongue recommends buying the company’s American depositary receipts.

Total Ebitda -- or earnings before interest, taxes, depreciation and amortization -- may rise to $4.7 billion by 2016 or 2017, Cemex said in February, topping 2013’s $2.64 billion.

Cemex may earn $25.6 million this quarter on an adjusted basis, according to the average of five analyst estimates compiled by Bloomberg, its first profit since 2009.

“We expect a tremendous recovery in Mexico,” Zambrano said yesterday. “The demand for cement will be very important.”

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