Borrowing costs for Cemex SAB, the largest cement maker in the Americas, are climbing to a four- month high after slackening economic growth in Mexico and the U.S. led the company to its sixth consecutive quarter of losses.
Yields on Cemex's $1.2 billion of bonds due in 2020 rose 21 basis points, or 0.21 percentage point, in the past two months to 8.84 percent. The average yield on Mexican corporate debt sank 22 basis points during the same period, according to JPMorgan Chase & Co. Similar-maturity bonds sold by Holcim Ltd.'s, the world's second-biggest cement maker, yield 4.78 percent, down 58 basis points in the past two months.
Cemex is losing money as slowing growth in Latin America's second-biggest economy reduces demand for building materials. In the U.S., the company's main foreign market by sales, reports last week showed home prices tumbled to the lowest level since 2003 while the unemployment rate unexpectedly rose.
"If the U.S. sneezes, Mexico gets pneumonia," Carlos Legaspy, who manages about $300 million in emerging-market debt at San Diego, California-based Precise Securities, said in a telephone interview. "Cemex is a quintessential cyclical name. They're immediately going to be affected by this whole double- dip in housing and the weak economic data here in the U.S."
Cemex's bonds yield 483 basis points more than Mexican government dollar bonds that mature in 2019. On June 3, the differential reached 485, the biggest in five months, according to data compiled by Bloomberg. Cemex issued the bonds in April 2010, less than a year after refinancing $15 billion of bank debt to avoid a default following the global financial crisis.
'Work In Progress'
The Monterrey, Mexico-based company, the world's fourth- largest cement producer with annual sales of 178 billion pesos ($15 billion), said April 29 that it posted a loss of $276 million, or 27 cents per American depositary receipt, in the first quarter. Analysts predicted a loss of 14 cents per ADR, according to the average of six estimates compiled by Bloomberg.
Chief Financial Officer Fernando Gonzalez said on a conference call that day that the recovery in the U.S. housing industry "remains a work in progress." Cemex cut its forecast for growth of U.S. cement and ready-mix concrete shipments to "low to mid-single digit" this year, from 5 percent for cement and 6 percent for concrete in February, Gonzalez said.
Jorge Perez, a Cemex spokesman in the Monterrey suburb of San Pedro Garza Garcia, declined to comment.
Slowing Growth
"The issue now is the recovery," Miguel Angel Aguayo, a fixed-income analyst at Grupo Financiero Banorte SAB, said in a telephone interview from Mexico City. "The U.S. market is very volatile with regards to the rhythm of the recovery. What the investor is waiting for is an upturn in flows."
Gross domestic product in Mexico grew 4.6 percent in the first quarter, less than the 5 percent median forecast in a Bloomberg survey of 17 analysts. In the U.S., which buys about 80 percent of Mexico's exports, manufacturing grew in May at the slowest pace in more than a year and the jobless rate climbed to 9.1 percent. Cemex gets about 18 percent of its revenue from the U.S. and 24 percent from Mexico.
The expansion in the world's biggest economy will pick up in the second half of the year, helping shore up Cemex's sales, said Guillermo Rodriguez, who helps manage $5.5 billion at Corp. Actinver SAB.
"Optimism will return in the second half and we'll start to see better data," Rodriguez said in a telephone interview. "That should help Cemex. In the long term, it's a good investment."
Stock Slump
The extra yield investors demand to hold Mexican government dollar bonds instead of U.S. Treasuries narrowed five basis points to 140 at 7:47 a.m. New York time, according to JPMorgan.
The cost to protect Mexican debt against non-payment for five years rose 1 basis point to 106, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to its debt agreements.
The peso rose 0.3 percent to 11.7140 per dollar. Yields on TIIE interest-rate futures contracts maturing in December rose 3 basis points to 5.01 percent.
Cemex fell 0.4 percent yesterday to 9.7 pesos in trading on the Mexico City stock exchange, leaving it down 23 percent this year. The benchmark IPC index is down 10 percent in 2011. Holcim shares have dropped 8 percent this year while those of Paris- based Lafarge SA, the world's biggest cement maker, have declined 3.3 percent.
Debt Refinancing
Cemex will issue a "small amount" of debt this year because it has already covered its financing needs until 2014, Gonzalez said April 29. The company is seeking to extend debt maturities after the U.S. housing market collapse reduced demand for building materials and prompted the company to pursue the refinancing agreement with banks in 2009.
Standard & Poor's cut Cemex's rating three times in the 10 months through August 2009, lowering it to B-, or six levels below investment grade, from BBB. S&P raised it back one level to B two months later, citing the money raised from share and asset sales. Cemex reduced its debt by $5.9 billion since June 2009 to $17.7 billion last year.
"Cemex has worked more with its financial structure than with its flows per se," Banorte's Aguayo said. "The flows are the heart of the business."
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