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 US$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 5.62 per cent, said Alonso Madero, who helps oversee US$5.5 billion of debt at Corporation Actinver SAB in Mexico City. It would have to pay a rate as high as 7.8 per cent if the securities weren't backed by assets, Madero said.
Cemex is tapping credit markets as growth in the US, 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 US$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 US$650 million more of its notes maturing in 2018 to yield 9.5 per cent last week, fuelling a tumble in the secondary market. The yield on the outstanding bonds climbed to 8.9 per cent the day the new notes were sold from 8.5 per cent on July 5, according to data compiled by Bloomberg. Mexican government debt due in 2019 yields 3.73 per cent, while similar- maturity bonds sold by Holcim Ltd, the world's second-biggest cement maker, offer a rate of 4.67 per cent.
Highest rating
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 ten-month span ending August 2009 after the company boosted debt levels to pay for the US$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 narrowed two basis points to 139 at 7:45 a.m. New York time, according to JPMorgan.
Default swaps
The cost to protect Mexican debt against non-payment for five years climbed 1 basis point to 115, 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 rose 0.1 per cent to 11.7077 pesos per dollar. Yields on futures contracts for the 28-day TIIE interbank rate due in March fell 4 basis points to 5.06 per cent, indicating traders expect the central bank to raise the rate that month. Cemex has raised US$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 US$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.
Refinancing
"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 US, which is its largest foreign market. Cemex's annual sales in the US plummeted to US$2.49 billion in 2010 from US$4.9 billion in 2007 and operating cash flow-or Ebitda-turned to a loss of US$44.9 million in 2010 from a gain of US$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 per cent of Cemex's sales in 2010.
(Bloomberg)