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Cemex Tries to Calm Investors on Its Debt Pile
Cyntia Barrera Diaz | October 02, 2011

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Mexico City. Cemex of Mexico has so far failed to convince investors its financial problems are past or ease concerns about its foreign-exchange exposure.

Cemex rolled out its big guns in New York on Thursday after a 63 percent decline in its US share price during the latest quarter.

Chief executive officer Lorenzo Zambrano and 10 of his top managers faced down a room full of investors and analysts concerned about the company’s future.

Cemex is still struggling to recover from paying $14 billion in a takeover on the eve of the global financial crisis, saddling the cement maker with massive debts it is still struggling to clear.

In the seven-hour meeting, the executives said that Cemex would cut debt to help it meet covenants through 2012 and promised to sell $1 billion in non-core assets. It also expected key US operations to improve.

But investors were not convinced. Cemex shares fell on Thursday and dropped another 8 percent on Friday at the New York Stock Exchange and a similar decline for its Mexico-traded stock.

Analysts said that the cement maker’s view was too optimistic and glossed over the prospect of a more complex outlook if the world economy continues to worsen. One suggested spinning off some of its businesses would help returns.

Cemex’s problems stem from the takeover of Australian rival Rinker in July 2007, one of the largest-ever takeovers by an emerging markets company, in a bid to become the biggest cement maker in the United States.

The deal cleared just as the bottom fell out of the housing market in the United States, leaving Cemex loaded with debt.

Bad derivatives bets added to the woes and Cemex almost defaulted on $15 billion in debt in 2009. It managed to negotiate a refinancing deal, then renegotiated in 2010.

One concern was the Mexican operation — a top cash generator for Cemex, which reports in dollars.

Zambrano expected the peso to return to “equilibrium” by end year. Earlier this month, the peso slipped to 14 pesos per dollar, though officials have said they expect it to recover.

According to the company, every one-peso fall in the exchange rate against the US dollar slashes Cemex’s Ebitda by $100 million annually and free cash flow by $80 million

Reuters