Cemex Further Reduces Debt

Recently, CEMEX, S.A.B. de C.V. (CX - Analyst Report) completed the sale of its Australian operations to Switzerland's Holcim Ltd (HOLN.VX). The proceeds of A$2.02 billion (approximately US$1.7 billion) will be used to reduce debt and to strengthen CEMEX’s liquidity position.

This asset divestment marks another milestone in CEMEX’s efforts to regain its financial flexibility. These efforts include the refinancing of US$15 billion dollars of debt and the global offering of 1.495 billion Ordinary Participation Certificates (CPOs), including the over-allotment option, with estimated net proceeds of US$1.782 billion.

Cemex’s huge leverage is a vital problem. Net debt at the end of the second quarter was US$18,272 million, and is more than 5x the expected EBITDA for 2009.

It is all the more urgent for CX as it is battling leading cement makers like France's Lafarge SA (LAFP.PA) and HOLN.VX in a difficult market.

CEMEX intends to reduce its net debt by approximately US$3.6 billion in 2009 to reach US$14.3 billion at the end of the year in order to restore financial flexibility as soon as possible and meet its financial commitments. The company is indeed making a huge effort to restore its creditworthiness and adapt itself to new and much more difficult market conditions.

Almost all important governments in the world, including the U.S. , European Union and China are announcing huge expenditure for infrastructure in the coming quarters. However, we believe it is still too early to be sure that the expected Government expenses will provide all the demand needed for the company to generate all cash flow necessary to reduce its huge debt and return to profitability.