Displaying items by tag: Debts
China: Courts have ordered Shandong Shanshui Cement Group to pay back its creditors US$372m, the company said in a statement reported by Reuters. Shandong Shanshui Cement said it was unlikely to be able to make the required payments due to financial troubles. The courts will now start to auction off the company’s assets.
Bond defaults by a subsidiary of Shanshui Cement Group had led creditors to seek legal redress. Shandong Shanshui Cement's statement to the Shanghai Clearing House described almost 100 lawsuits against the company. The total amount sought is around US$764m.
Cemex takes charge of its debts
16 March 2016Cemex has taken action towards its debts over the course of the last week. First, it announced that it had amended its credit agreements in order to delay the looming effects of consolidated financial leverage and coverage ratio limits by one year to March 2017 with other similar deadlines also delayed. Then it announced the pricing of US$1bn of Senior Secured Notes due in 2026, a form of secured borrowing. This was followed by confirmation of asset sales in Bangladesh and Thailand. Finally, it announced that it was seeking regulatory permission to sell a minority stake in its subsidiary in the Philippines.
This column has discussed the on-going financial travails at Cemex a few times, notably recently when the group released its fourth quarter results for 2015 and in the wake of HeidelbergCement’s announcement to buy Italcementi. Basically, it all comes down to debt, as the following graph shows.
Figure 1 - Cemex assets, debt and equity, 2006 - 2015
Cemex took on large amounts of debt following its acquisition of Rinker in 2007. Since then the value of its assets have been falling faster than it has been able to reduce its debts. However, its equity (assets minus debts) is looking like it might dip below its debts in 2016. Hence, action needs to be taken. Cemex appears to have attempted to do this over the last week. Will it be enough?
The credit amendment was probably the most pressing issue for the Cemex management given that the terms have been reliant on maintaining a leverage ratio (debt divided by assets) below a set limit. Cemex has extended the terms of the borrowing in its favour so it can keep the leverage ratio higher for longer without penalty from its creditors. Note that the leverage ratio here means the ratio between debt and operating earnings before interest, taxation, depreciation and amortisation (EBIDTA).
Selling assets and shares in Asia is the next step in cutting debt in the window the group has negotiated for itself. It holds minor cement production assets in Thailand and Bangladesh that it is selling to Siam City Cement for US$53m. These include a 0.8Mt/yr integrated cement plant in Saraburi, Thailand and a 0.52Mt/yr cement grinding plant in Madangonj, Bangladesh. Unfortunately for Cemex it purchased the Saraburi plant for US$77m in 2001 from Saraburi Cement making it a loss of at least US$24m.
A minority sale of shares in its Philippines assets is more promising. The group runs two integrated cement plants in the country, the Solid Cement Plant in Rizal and the APO Cement Plant in Cebu with a combined cement production capacity of 6.23Mt/yr and a new 1.5Mt/yr production line on the way at Solid Cement also. Local media estimate that the sale could earn Cemex as much as US$850m from the booming market. The Cement Manufacturer's Association of the Philippines reported that cement sales volumes grew by 14.3% to 24.4Mt in 2015 with more growth predicted for 2016.
The credit amendment and asset sales of US$0.9bn may give Cemex the breathing room it requires to keep the creditors at bay for a while longer. It originally refinanced its debts in 2009 at the height of the financial crisis to keep the business running until the markets picked up again. They haven’t. A question that might be legitimately asked at Cemex’s analyst day later this week, on 17 March 2016, is this: when is Cemex going to seriously tackle its debts? As the situation continues the group may end up devoting more time to managing its debts than it will to actually making cement and other building products.
Russia: Eurocement and Sberbank CIB, Sberbank’s corporate and investment banking business have agreed on conditions for restructuring the company’s loan portfolio. The restructuring involves postponing the repayment of loans worth a total of US$592m and US$360m for up to six years, as well as optimising interest rates for the company’s loan portfolio at Sberbank.
“Sberbank CIB is a strategic partner of Eurocement. This agreement will help us cut debt servicing costs and minimise the influence of negative macroeconomic factors on our company,” commented Mikhail Skorokhod, President of Eurocement. The conditions for restructuring the debt portfolio will enable Eurocement to take a more flexible approach to financing its operational activities and help it achieve strategic goals.
Jaiprakash Associates misses interest payment on bonds
09 March 2016India: Jaiprakash Associates has missed an interest payment due on 7 March 2016 on its bonds worth US$150m. The interest will be paid later from the proceeds of its recent US$2.4bn sale of cement assets, the company said in a statement.
"Interest was payable on the bonds on the semi-annual interest payment date of 7 March 2016. The issuer wishes to inform you that it has not paid such interest. The issuer intends to engage in discussions with holders of the bonds," the statement said. The convertible bonds are due for redemption in 2017.
Jaiprakash Associates announced in late February 2016 that it was selling the majority of its 22.4Mt/yr cement portfolio to UltraTech Cement for US$2.4bn.The group has an estimated debt of US$11bn as of 31 March 2015, according to a Credit Suisse House of Debt report dated 21 October 2015.
Cemex: wrong place, wrong time?
10 February 2016Cemex trumpeted last week that it had returned to positive net income for the first time in six years in its fourth quarter results for 2015. In effect the multinational building materials company was saying it is putting its house in order following taking on too much debt in the late 2000s. Similar reassuring noises have repeatedly been made as it has cut its debts down since that time.
The figure Cemex was shouting about this time was its controlling interest net income or the net income attributable to the controlling shareholder. It has risen to a gain of US$75m after being negative, or in loss, since 2010. In that year the sting from the financial crash in 2008 caused havoc and net sales for the company hit a low of US$14bn, having been at over US$20bn in the boom times of 2007 and 2008.
Meanwhile, the company has been steadily whittling away at its total debt reducing it down to just US$15.3bn in 2015. This is a massive figure given that its total equity was US$9.5bn in 2015.
By comparison, Lafarge was reporting a net debt of Euro9.3bn in 2014 compared to a total equity of Euro17.3bn. Its debt-to-equity ratio was far smaller than Cemex’s despite being perceived as the weaker partner financially going into the merger with Holcim in 2015. Unsurprisingly, it was news in August 2015 when Cemex refinanced a bank loan agreement for a US$15bn debt that was previously renegotiated in 2009. Everyone is watching Cemex’s debts keenly.
Against this financial backdrop Cemex’s cement business has been steadily producing fairly static levels of cement since 2009. It 2015 it has reported that it produced 66Mt. However, net sales fell in 2015 by 8% year-on-year to US$14bn, a disappointing result following sales growth since 2012. Fernando A Gonzalez, Cemex’s Chief Executive Officer, blamed it on a ‘challenging’ macroeconomic environment.
Notably overall net sales have been down in Mexico, Northern Europe and Central and South America in 2015. Although Cemex hasn’t released cement sales volumes, volumes fell by 3% in Northern Europe, 2% in its Mediterranean region and 4% in Central and South America in 2015. Thankfully, growth continued to pick up the US, bolstered by housing and infrastructure spending. The Philippines has remained a powerhouse in cement consumption in Asia.
Reviewing Cemex’s expansion projects in 2015 suggest muted capital expenditure with a focus on upgrades and side projects rather than clinker production growth. Such announcements included projects in Nicaragua, the Dominican Republic, Colombia and Mexico. The exception was in the Philippines where a full-on US$300m project including a new 1.5Mt/yr plant was announced in May 2015. Given the surging cement volume sales in the country this is likely a safe investment.
As discussed previously in this column and elsewhere Cemex has suffered from high debts at exactly the time its major international rivals have started to merge. At the same time its Chinese rivals in terms of production capacity have undergone similar capacity consolidation as part of state mandated capacity reduction initiatives. This has left Cemex between the mega-cement producers like LafargeHoclim and HeidelbergCement and the up-and-comers such as Eurocement or Votorantim.
Now, its reliance on markets in the Americas it hitting a roadblock from reducing growth south of the US as global commodity prices tumble and economies suffer. It couldn’t have happened at a worse time for the company. Bar the odd bright spot such as the US and the Philippines it seems that all Cemex can do is wait it out.
Mergers and acquisitions aplenty… but what about Cemex?
19 August 2015In early 2014 the top of the global cement producer charts looked very different to how it does today. The big four multinationals, Lafarge, Holcim, HeidelbergCement and Cemex, were clearly out in front and ahead of the rest of the global top 10. While there was discrepancy in their sizes, the largest, Lafarge (224Mt/yr) had just over twice the cement capacity of fourth-placed Cemex (95Mt/yr), with Holcim (218Mt/yr) and HeidelbergCement (122Mt/yr) between these extremes.1 With an impressive 659Mt/yr of capacity between them, these four accounted for just shy of half of global cement capacity outside of China.
However, as those with even a passing interest in the cement sector will know, this is no longer the case. The merger between Lafarge and Holcim and the subsequent acquisition of Italcementi by HeidelbergCement has stretched out the range of the top producers significantly. Today LafargeHolcim has around 340Mt/yr of installed capacity and HeidelbergCement 200Mt/yr. Meanwhile Cemex is still 'stuck in the 90s,' with a capacity of around 92Mt/yr following the sale of its Croatian cement assets last week. The Mexican 'giant' is now almost a quarter of the size of LafargeHolcim. What does this mean for the world's number three (excluding Chinese producers) and what might the future hold?
Well... the old adage goes that you have to move forward to stand still. However, Cemex has not moved forward over the past two years, meaning that is hasn't kept up the pace with its immediate rivals. It hasn't been able to, hemmed in by the debt that it took on from its poorly-timed acquisition of Rinker in 2007. Indeed, Cemex is looking to contract further, with aims to shed a further Euro600 - 1100m of non-core assets in 2015.2 Against improved positions at LafargeHolcim and HeidelbergCement, Cemex increasingly looks like an 'Americas specialist' rather than a full-blown multinational. A stake in Cemex LatAm Holdings is up for sale, but the sale of more cement plants may also be on the way. This is all being done to improve Cemex's investment grade rating from B-plus, four grades below investment grade.
If Cemex does have to shed further physical assets on the ground, it is very unlikely that it would chose to do so in the Americas, where it is a very major player. It is number one in Mexico, third in the US and well-postitioned in numerous growth markets in Central America. If push comes to shove, it is far more likely that it would sell assets that are further from home. These are in Europe, the Middle East and the Far East.
Cemex has 43% of its production capacity outside the Americas. Certain assets, such as those in Thailand, Bangladesh and the Philippines, may be appealing to CRH, which is already set to acquire LafargeHolcim divestments there and is known to be considering other purchases in the region.3 Cemex also owns several cement plants in better-performing EU economies like Germany and the UK. In Germany, the company has already completed a small downsizing exercise by selling its Kollenbach plant to Holcim (LafargeHolcim). Meanwhile, Cemex UK is a major player in the UK, where the Competition Commission has recently been very keen to increase the number of producers. Elsewhere, Cemex's share in Assuit Cement in Egypt could provide much needed revenue, as could its small stake in the Emirati markets.
Thinking more radically, and in keeping with the current trend of mega-mergers and large-scale acquisitions, could Cemex find itself the target of the next global cement mega-merger / acquisition? Certainly, its strength in Central and South America completely complements HeidelbergCement's lack of coverage here, making a future 'HeidelbergCemex' a potential winner.
The other option, if/when Cemex regains its investment rating, would be for Cemex to acquire or merge with a company further down the list of global cement produers. Africa is an obvious target, with rapid growth and a lack of Cemex assets at present. A foreigner buying up Dangote is probably out of the question, but PPC would be an interesting target, as would increasingly isolated Brazilian producers that could help shore up Cemex's South American position.
If the past 18 months in the global cement industry have shown anything, it is that we should expect the unexpected. It will be very interesting to see how all players, both large and small, will react to the recent goings on in the rest of 2015 and beyond.
1. 1. Saunders A.; 'Top 75 Cement Producers,' in Global Cement Magazine – December 2013. Epsom, UK, December 2013.
1. 2. Reuters website, 'Mexico's Cemex could sell part of business to pay down debt: CEO,' 10 February 2015. http://www.reuters.com/article/2015/02/11/us-mexico-cemex-idUSKBN0LF05320150211.
1. 3. Global Cement website, 'CRH investment spend set to pass Euro7bn with South Korea cement deal,' 12 June 2015, http://www.globalcement.com/news/item/3721-crh-investment-spend-set-to-pass-euro7bn-with-south-korea-cement-deal.
Cemex completes refinancing of bank debt
04 August 2015Mexico: Cemex has completed the refinancing of a bank loan agreement, paying off the remnants of what was originally a US$15bn debt refinancing at the height of the 2009 global crisis, according to Dow Jones.
Cemex said that it paid ahead of time the remaining US$1.94bn of a 2012 accord, using funds from 17 financial institutions that joined others in a refinancing deal reached about a year ago. The amount owed under the new credit agreement now stands at around US$3.79bn, including Euro620m (US$681m) and the rest in US Dollars.
"We have now consolidated our syndicated bank debt in a single agreement under improved conditions that better reflect our financial metrics. We are pleased with the interest shown by the bank market in this transaction and the continued support of our lenders," said CFO José Antonio González. With the latest refinancing, Cemex's only significant debt payments in the next two years are US$352m in convertible notes due in March 2016 and a US$373m principal payment in September 2017 on the existing bank loan agreement.
Cemex refinanced around US$15bn in bank debt during the 2009 global crisis, when the company's earnings fell and put payment of its heavy debt load at risk. In 2012, with about half of the amount left to pay, Cemex rescheduled around US$6bn and has since carried out further refinancings to lower the cost and extend the maturity of its debt. Cemex's total debt at the end of June 2015 stood at US$15.9bn, down from US$17.1bn a year earlier.
EGAS dues from National Cement plant hit US$131m
18 June 2015Egypt: According to the Middle East North Africa Financial Network, Egyptian Natural Gas Holding Company's (EGAS) dues from the government-owned National Cement plant have hit US$131m. EGAS has demanded that its money be paid back, but it remains undecided when it will receive the dues.
"The total dues from the industrial sector are now more than US$1.57bn, for its natural gas consumption and the delay in paying monthly bills," said EGAS chairman Khaled Abdel Badie in a statement to Daily News Egypt. EGAS dues from public sector plants amount to 75% of the total debt, because they are not committed to paying the monthly consumption bills, the chairman added.
According to Abdel Badie, EGAS will not be able to cut its gas supply from the National Cement plant because the plant is government-owned and is linked to a gas line that comes directly from the field. Abdel Badie said that dues are continuously rising and that EGAS gave the industrial plants a debt re-scheduling, but only a limited number of private-sector plants took part. New committees were also formed to resolve financial obstacles between public entities, however, nothing has been resolved yet.
Trinidad & Tobago: According to chairman Wilfred Espinet, director Nigel Edwards and new chief executive Jose Luis Seijo, Trinidad Cement Ltd (TCL) has repaid all of its previous lenders.
"TCL has been able to secure the funds to repay those lenders from short term loans in the amount of US$245m, together with cash from its recent Rights Issue and cash generated from operations," said Espinet. The company has also secured a nine-month loan facility from Citibank and Credit Suisse at an initial rate of libor plus 6.25% (a current effective interest rate of 6.53%), subject to a quarterly increase of 1% if it is still in issue.
In the coming weeks, TCL, Credit Suisse and Citibank intend to approach local and international markets to secure longer-term financing that will bring TCL to the final stage of the reorganisation of the capital structure. Some of the expected immediate benefits from the refinancing are a debt reduction from prepayment of previous lenders of US$31m, a reduction in financing costs in the form of quarterly interest savings of up to US$1.7m and a stronger balance sheet.
Jose Luis Seijo was named as TCL's new chief executive officer effective from 4 May 2015. Previously, Seijo has worked with Mexico's Cemex. Seijo's focus will be on value creation for the company and its stakeholders. "The TCL Group has huge potential. My immediate job is to tap into all our resources-essentially to mobilise the skills of our workforce against a backdrop of improved operational efficiencies and prudent investments to ensure a sustainable future," said Seijo. Former CEO Rollin Bertrand was dismissed by the TCL board in September 2014.
PPC to slow expansion as debt rises
24 April 2015South Africa: PPC will slow its international expansion due to rising debts, says chief executive officer Darryll Castle. The South African cement producer is building cement plants in Democratic Republic of Congo (DRC), Zimbabwe, Algeria and Mozambique in order to generate 40% of its sales outside its home market by 2017. However, spending on these projects is pushing up its debt levels and Chief Executive Officer Darryll Castle said PPC's debt would likely hit as much as US$982m in the next two years and possibly breach agreed covenants with banks, according to Reuters.
"We wouldn't want to stretch our balance too much. The focus currently is on existing projects," said Castle. He added that PPC was in talks with banks about changing the agreed debt covenants to reflect the fact that some of the debt was ring-fenced from the South African balance sheet.