Banks Will Bend for Cemex, Market Bets

It is up to Cemex’s bank lenders to save the company from default, according to analysts. The market assumes the cement giant’s problems with banks – which involves some $15bn in maturing facilities in the coming years – get resolved through renegotiation, because that is the only option that makes sense. “The way forward is pretty clear,” says Eric Ollom, debt analyst at ING, speaking on an EMTA panel Monday. He notes Cemex’s lead banks have no incentive to allow default because they would have to provision for loans, which would mean taking enormous losses. “These are performing loans,” he adds, concluding that, “the market has generally overestimated the risk of default.” Cemex is entangled in complicated discussions with, among others, BBVA and Santander – which have a combined $4.6bn exposure to the company – on how to roll over very near-term maturities. It is still far from discussing how much of the full-year 2009, 2010 and 2011 debt will be able to be rescheduled and on what terms, says a person close to the talks. Alonso Cervera, economist at Credit Suisse, says fear of systemic risk to Mexico’s corporate sector has been overblown, and points to a 10% rise in Cemex ADRs YTD. The corporate sector generally is not in trouble, though some individual companies are, adds Cervera. While Cemex’s relationship bankers privately reveal willingness to help, it is unclear how successful debt talks will end up being. While analysts like Ollom and Cervera see the market betting on an eventual solution, it is unclear what it would look like. There is also concern about the cost of months of further uncertainty. Much of the optimism about finding a solution hinges on scant publicly available information and the firm belief that BBVA and Santander will act rationally. Barclays last week put out a note predicting recovery on senior unsecured debt will be 40%-50% at Cemex SAB and 50%-60% at Cemex Espana.