Mexico Rescues Cemex, Fears Systemic Risk

Mexico is rushing to prop up Cemex and keep the debt laden cement giant from getting entangled in a messy row with lenders, say senior government officials involved in the process. Rumors of the government’s plan to support corporates under pressure have been circling for weeks, but few outside Hacienda anticipated that the state would step in as boldly and swiftly as it appears to have done with the fallen Mexican blue chip. “Cemex is a different case [from other troubled companies in Mexico] because of its importance to national economy and its complexity,” Gerardo Rodriguez, head of Mexico’s public credit department, tells LatinFinance. He says the government has chosen to take a more active role in mediating talks and even provide direct funding to Cemex, characterized by many observers as a national crown jewel. Following a series of meetings with Cemex and government officials in the past weeks, banks are heard having agreed to an extension of the next 2 years’ maturities and a subsequent scheduling out of remaining debt, though further details have not been disclosed. Most of Cemex’s lenders are foreign banks that lend to numerous Mexican companies. A contentious situation with a big client could convince increasingly conservative credit committees to pull out of the country and the region, warns a New York-based syndications banker. A banker at one of Hacienda’s departments says the government acknowledges that failing to ensure a successful workout could lead to a confidence crisis of vast proportions. “We are sensitive to the possibility of systemic risk,” says the government official, who points out Cemex has so far avoided default. While Cemex faced a seemingly unmanageable maturity hump – 73% of its $14bn in total comes due by year-end 2011, according to ING – it is an otherwise healthy, cash generating concern not toppled by ill advised derivative losses, say government officials. As such, supporting Cemex poses little risk of moral hazard and is consi