Latin Finance - July/August 2010 - 32

cemex cfo interview

Cemex took protection on the rates Treviño. “We retired as many as it made with collars which were unwound by the economic sense to us at the level.” first quarter of 2009, both on rates and The CFO adds that for all of the last currency, when the company found it few years of divestments and liability did not have enough cash or committed management, it made sense to move facilities behind it to meet margin calls. quickly. “You never know if the capital Since then, Cemex has hedged itself markets are going to shut down again, so directly on the balance sheet, rather than why take the risk?” says Treviño. through derivatives. To that end, Cemex has worked hard For example, it has 10 times euro debt to build trust and credibility with its for each unit of euro earnings. If the euro lenders, through relationship building weakens, Cemex generates less Ebitda and taking business to banks willing to deploy balance sheet. Treviño, who was a in euros, but dollar equivalent debt also banker for 18 years, understands that this falls. “Our leverage actually improves,” says the CFO. is a two-way street. Treviño notes the importance of having a Cemex Debt Amortization Schedule ($bn) good balance of bank debt Spike in 2014 – which can be renegotiated – and capital markets 9 debt, especially when a 8 borrower has leverage. He adds that capital markets 7 could close at any time, 6 exacerbating risk for borrowers with short-term 5 maturities. “If something 4 happens that forces the financial institutions to shut 3 down again, that’s very 2 disconcerting,” says Treviño.

“After all the painful things we’ve done in the last nine months, there’s no reason to inflict more pain on ourselves and our shareholders by destroying value, selling something prematurely,” he adds. While there may be some bargains out there for global cement companies with cash, Cemex is constrained by a high cost of capital. However, the company has committed $100 million to a minority stake in a new investment vehicle called Blue Rock Cement Holdings, to which it will also provide technical and operational expertise. Cemex has a call option after year five, when it hopes to snap up some attractive assets. “What we have invested in that fund is the purchase price of an option,” says Treviño. Blue Rock was set up this year to invest in cement and related assets such as aggregates and ready-mix concrete, mainly in emerging and high-growth markets. In April, it announced plans to develop a new $230 million cement plant in Peru, with Cemex assisting in development, construction and operation. Treviño is especially proud of the fact that the company’s leading 25 shareholders as of the third quarter 2008 – most of them US institutional investors – have stuck with Cemex and increased exposure. “They are comfortable with what we have been doing to position ourselves to benefit from the recovery going forward. And we want to make sure that we keep them,” says the CFO. “Everything we’re doing is aimed at making sure we’re doing the right thing in terms of capital allocation decisions and taking advantage of the recovery for their benefit, so that they can recover a portion of what they have lost,” he adds. The one fear is losing market access, even though Cemex has no large maturities until 2013. “I worry about a capital markets shutdown again,” Treviño says. “That’s why we have been so proactive in eliminating the refinancing risk,” he adds. LF
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0 Careful handling of investors 2010 also extends to local markets, which Treviño says Cemex Source: Cemex has treated well, without missing a payment or asking to refinance or restructure. “It’s a market that appreciates that, and likely will be open for Cemex,” says the CFO, who concedes Mexican investors have a strong bias towards high grade. “I suspect that as our credit ratings improve and our need for long-term money returns, then we would have access to that market again,” he adds. Cemex is rated single B internationally by S&P and Fitch. After a $711 million writedown in 2008, the company has stopped using derivatives, which Treviño says Cemex never deployed for speculative purposes. He adds that the operating business cycle is positively correlated to the interest rate cycle, so Cemex needs to borrow floating rate to reduce volatility in free cashflow, but hedge that.

Sitting Pretty?

Treviño expresses concern about derivatives losses that whacked Mexican corporates like Comerci, Gruma and Posadas. “I never understood what the companies buying those were buying, and what the bankers selling those were selling,” Treviño says of the so-called toxic derivatives that took down several large Mexican companies. “I don’t know how those products, some of them, pass the suitability test,” he adds. Cemex has other ways to generate cash by monetizing non-core assets, though there is no urgency to do this. “We wish we could sell at middle-of-the cycle fair valuation, but some of them are just not there,” says Treviño. This may include real estate like quarries, but there is nothing of significant size to sell.

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July/August 2010

Latin Finance - July/August 2010

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