MEXICO: Mexico's $10bn cement giant lightens its load

Mexico's $10 billion cement giant is lightening its load. Though expansion weighed Cemex down with debt and losses, the US housing recovery, eager bond buyers and a planned initial public offering in Colombia are now paving the road to recovery. The investment thesis, however, is less than concrete.

Cemex is building on advantageous conditions. Creditors agreed to refinance about a third of its $18 billion debt load in August, giving the company more wiggle room. And yield-hungry investors last week bought another $1.5 billion of newly issued Cemex bonds. Demand was so high, in fact, that the company sold 50 percent more than planned.

A construction rebound also is working in the company's favor. Sales from Cemex's US unit, which accounts for about a fifth of revenue, were up 23 percent in the first half from a year ago. Business in Mexico and South America also increased 14 percent. All the positive momentum has helped lift the company's US listed shares by over 70 percent in 2012 to their highest level in two years.

That healthy appetite for Latin stocks also should help Cemex elsewhere later this month. To satisfy creditors, the company agreed to sell parts of its business. An IPO of its South American and Caribbean operations in Bogota is coming fresh on the heels of a successful listing in the region by Santander's Mexican arm. According to Banco Ita?, the Cemex unit being floated could be worth nearly $8 billion.

Nevertheless, the path remains more gravelly than the market seems to think. The company hasn't paid dividends in four years - and restoring them looks distant. Debt covenants still need to be met and creditors would need to approve any payouts. Even assuming roughly 6 percent sales growth a year, Credit Suisse estimates it'll take until 2014 before Cemex returns to profitability.

And yet the company trades at 10.4 times its last 12 months of EBITDA through June 30. That's a multiple about 25 percent richer than for global peers Holcim and Lafarge . While Cemex has come a long way, investors should remember it also hasn't completely shed its cement shoes.

CONTEXT NEWS

- Mexican cement maker Cemex on Oct. 4 sold $1.5 billion in 10-year notes paying an interest rate of 9.375 percent. Demand for the notes approached $7 billion before the books closed, according to IFR. Fitch rated the notes B-plus with a stable outlook.

- Cemex shares rose to a 20-month high following the bond sale and the company also providing on Oct. 4 its first financial forecast since February 2009. Cemex plans to list shares of its South American and Caribbean operations in Colombia in October.