Monumental. Not a word often associated the bond market, but it was used last year to describe an issuance by Mexico’s Cemex.
Cemex went to the market twice in 2021, first in January with a $1.75 billion bond that earned the “monumental” tag from Mizuho. It was back in June, with a $1 billion bond that Citi called a “milestone.”
A global construction material company, Cemex won the award for Corporate Issuer of the Year for its financing strategy, which included these two bond issues.
The January bond, which matures in 10 years, was the single largest deal for Cemex It also had the best coupon in US dollars in the company’s history, at 3.875%. The deal was originally conceived at $1 billion, but the company upped the size when orders were oversubscribed six times the original amount. It also established Cemex’s longest benchmark in US dollars.
“This bond, coupled with the proceeds from the sale of C02 allowances, enabled Cemex to undertake $2.1 billion of highly accretive transactions during the first four months of 2021,” CFO Maher Al-Haffar tells LatinFinance. “These liability management exercises along with the tail effect from 2020 helped Cemex to very early in the year lock-in more than $100 million dollars in interest expense savings, a roughly 15% reduction when compared to 2020.”
Mizuho, which worked on the deal, stated that bond was “a testament to the company’s continued growth and its path to becoming an investment-grade company.”
The second deal, while smaller, was equally impressive. A perpetual hybrid note, it was Cemex’s first foray in the subordinated bond market in 14 years and the first subordinated bond by a Mexican corporate since 2018. Yield was 5.125%.
“This transaction, that is treated as equity under IFRS and achieved 50% equity credit by rating agencies, propelled Cemex in its path towards regaining investment grade by optimizing its capital structure and accelerating its deleveraging path. Together with strong EBITDA growth and free cash flow generation, Cemex was able to reduce its leverage ratio to below 3.0x by the end of the second quarter of 2021,” says Al-Haffar.
The company’s improving fortunes could get an additional boost in 2022 thanks to its presence around the region, including in the United States.
In a February 1 report on cement demand in the region, Fitch stated that demand will moderate in 2022 after the stellar year in 2021 with the rebound from the pandemic. Cement demand was up 17% in 2021 in the six largest economies in Latin America.
Latin America is Cemex’s largest region, representing about 50% of revenue. Mexico is the principal market with a 35% share. The United States accounts for represented about 30%, Europe 15% and the rest in Israel and the Philippines.
Demand in Mexico in 2022 forecast to decline around 2% compared to the previous year, but Cemex should benefit from its exposure in the United States.
“The strengthening of Cemex’s business position outside Mexico and our expectation of higher operating cash flows in hard currency would be positive for ratings,” Fitch said in its report. – LF