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Cemex selling assets to raise cash

TCL on the brink (Part III)
Wednesday, March 28, 2012

TCL is not the only cement company in the world to get itself into debt problems. Cemex is the largest cement producer in the western hemisphere. The Mexican company holds a 20 per cent stake in both TCL and its Jamaican subsidiary, Caribbean Cement, and a Cemex executive sits on the boards of both regional companies.


As recently as in Monday’s Guardian, a member of TCL’s management was warning workers that if they “continue to destroy TCL with strike and violence,” the locally headquartered, regional producer of cement and concrete could end up being sold to Cemex, as nearly happened in 2002 when the Mexican company made a hostile bid for TCL.


That bid—which was supported by Guardian Holdings chairman, Arthur Lok Jack, and Steve Bideshi, the adviser to Finance Minister Winston Dookeran—was eventually blocked through a spirited lobbying effort led by TCL group CEO Rollin Bertrand and the company’s chairman, Andy Bhajan.


Guardian analysis of TCL’s public financial records indicate that the Claxton Bay-based company stopped being profitable seven quarters ago—at the end of June 2010. According to a Bloomberg report in February, Cemex has not declared a profit for nine consecutive quarters and the loss it recorded in its fourth quarter amounted to US$146.2 million, compared with the loss in the fourth quarter of 2010, which was US$573.6 million.


Cemex’s financial problems were not caused by an expensive, debt-laden expansion project that blew past its cost and time budget, as TCL did with its Caribbean Cement subsidiary. Cemex got into trouble because of an expensive, debt-laden US$14.2 billion acquisition of a majority stake in the building products company, Rinker Group, in 2007.


The Cemex acquisition of the Australian company, which received more than 80 per cent of its sales in the US, was finalised about a year before the US recession, which throttled construction in the US and led to a sharp decline in the sale of cement and other building products. The Cemex transaction in 2007 was actually the smallest of the three huge building materials acquisitions in that year as it was eclipsed by HeidelbergCement’s US$18 billion takeover of Hanson (HEI) and the purchase by French construction giant Lafarge of Orascom Cement, the Egyptian producer for a total consideration of US$15 billion.


TCL was as guilty as other cement companies of making projections for expanded production—either through acquisitions or the construction of new plant—based on the assumption that the global building boom of the middle part of the last decade would continue uninterrupted. While Cemex, like TCL, has been forced to restructure its debt which peaked at US$17.8 billion, the Mexican building products giant has also implemented strategies that the executive management of TCL has so far failed to do.


In his 2011 letter to Cemex shareholders, the company’s chairman and CEO, Lorenzo H. Zambrano, stated: “In 2011, we sold assets valued at US$225 million, and expect to sell an additional US$500 million in assets by the end of 2012. All of these sales meet two important criteria: they improve our return on capital employed and de-lever our balance sheet,” meaning that Cemex is selling assets to pay down its debt.


A Bloomberg story in February also said that Lafarge and HeidelbergCement were considering the disposal of assets as a means of raising cash with which to pay down debt. Lafarge CEO Bruno Lafont said he’s aiming to sell at least one billion euros of assets this year, and his counterpart Bernd Scheifele at HeidelbergCement in November said he was going to look “more closely at disposals,” according to Bloomberg.


TCL, on the other hand, has so far issued no notice to its shareholders announcing any plan to dispose of its assets in order to fund its debt restructuring. In the letter to its shareholders, the Mexican group’s chairman proudly boasted that it had complied with all its financial covenants and other obligations and that as of January this year, it had paid close to US$7.7 billion—or more than half of the original balance outstanding under its main financing agreement.


According to Zambrano: “Strengthening our balance sheet and regaining our financial flexibility are critical to our future, and we have continued to make good progress on both. “We have substantially prepaid all of our debt maturities until December 2013, have kept our interest expense roughly stable, and have maintained sufficient liquidity to support our operations.”


TCL, on the other hand, has made no payments on its debts in the 15 months since it announced that it was declaring a moratorium on its debt. Finally, rather than negotiating with its representative trade union to increase the wages of all workers across the board, Cemex reduced its staff numbers by five per cent to 44,104 in the fourth quarter.


Other large cement producers are also seeking to prune their staff numbers or freeze their labour costs at 2010 levels.


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