Latin Finance - January/February 2010 - 42

outstanding verdict from an ISDA panel on whether the renegotiation constituted an event of default. The issue, which could affect a sizable amount of Cemex CDS and its ability to issue new bonds, was being Derivatives Policy Revisited reviewed by a special panel in December. Cemex’s $711 million derivativesMedina says Cemex is not party to related writedown in the post-Lehman decisions by ISDA on its securities and has peso selloff came at a bad time both no intention of planning issuance around financially and in terms of how it affected the matter. the market’s view of the issuer. The Another significant deleveraging event fact the company posted a loss from a was Cemex’s sale of its Australia assets to speculative derivatives trade proved to be Ahead of Schedule Holcim for $1.7 billion, finalized in early more damaging when held up alongside Much anxiety was fueled by Cemex’s October. With the proceeds of the sale a seemingly blasé attitude towards a contentious renegotiation with many and the equity offering, Cemex has taken maturity hump in late 2008 – the two smaller banks through the second and significant strides in meeting the terms of conspiring to suggest less than solid third quarters of 2009. When a deal was its refinancing, which include prepayment financial management. milestones. The equity Remarking on a series of offering has allowed conversations with Cemex the company to avoid CFO Rodrigo Treviño, the step-ups in margins on its DCM banker – who declines newly renegotiated credit to be identified – recalls facility, says Medina. a preference for complex “[The proceeds structures. “He didn’t from the sale of the want to do anything plain operations] has vanilla,” says the banker. helped us prepay all “The more complex the of the maturities until structure, the happier he December 2011,” he was.” adds. According to the Medina observes that agreement, Cemex is this oversimplifies a general required to pay down a interest in optimizing cumulative $4.8 billion in financial performance at debt through 2010, and the company. “In all our an additional $2.8 billion operations, the company through 2011. All smiles: CEO Lorenzo Zambrano survives the roughest year for Cemex in recent memory has a very strong culture Since the of being creative and restructuring was innovative. When we first started out, we finally clinched at the end of August, all unveiled in August, Medina has had a very high cost of capital because market participants, including equity consistently emphasized the fact that the of where we were based, our origins holders, bond investors and supporting agreement with financial institutions is and everything else,” he says. “Because analyst communities, breathed a hefty first and foremost geared towards paying of that, we have had to be creative and sigh of relief. And from that point on, the down bank debt. So when asked about innovative, and do the best we can to company found itself basking in a warm M&A, a longstanding pillar of Cemex’s save money, in everything.” glow of acceptance, which allowed it to growth strategy, Medina’s immediate Cemex’s propensity to use derivatives raise $1.8 billion in equity. reaction is to underscore the company’s beyond what perhaps other companies Follow-up deleveraging transactions commitment to deleveraging. did was an attempt to reduce the cost of include a 3 billion peso local market Still, he concedes that Cemex tries to debt, claims the executive. Medina also exchange offer for new 10-year be aware of all opportunities that come notes that over the past five years, the convertibles, and a December crossits way, and acknowledges CEO Lorenzo company’s broader derivatives strategy border bond issue. Proceeds were Zambrano’s comments on the possibility yielded many benefits that compensate earmarked for paying down bank debt in of using shares to buy interesting targets. for the loss posted in September when a accordance with the agreement Cemex “I don’t know what kind of transactions position had to be closed. made with its banks. could happen, but if there was something Whether because agreement with Analysts speculated that the company that deleverages that company, that banks prohibits, or because the company would avoid issuing bonds until an works,” he says. LF over that debt, and if the dollar market was closed, they would just do it in the certificados bursatiles market,” he adds, voicing a widespread view. recognizes the wisdom in fine tuning its use of complex instruments – likely both – Cemex now says it will no longer use strategies it does not fully understand. “We have a clear recognition that some of the derivative instruments are complex and difficult for people to grasp,” he notes. “Going forward, anything that we believe is complex and not easily understood, we will not do,” adds Medina. 42 LatinFinance January/February 2010

Latin Finance - January/February 2010

Table of Contents for the Digital Edition of Latin Finance - January/February 2010