Mexican cement maker Cemex, dealing with massive debt and the weak US economy, could run out of cash by summer if it fails to renegotiate millions of dollars in maturing debt, analysts warned. "We are renegotiating and when we have something we will let you know," a Cemex spokesman told Reuters on Friday without elaborating.
Cemex, the United States No 1 cement supplier, is struggling with $14.5 billion of debt, a third of which is due this year, and some investors speculate the Mexican government could bail the company out.
As demand for building materials like cement dries up in Mexico, the United States and other parts of the world, analysts are forecasting that Cemex will have very little cash left by the end of June and could miss payments if it fails to convince creditors to restructure its debt.
Those forecasts do not factor in additional cash needed by Cemex, once a leading Mexican bluechip that bought companies around the world, to fund its day-to-day operations.
"Cemex has enough liquidity to make payments in the first and second quarters, but if they cant restructure they are running against the clock," said Francisco Suarez, head of research at the Actinver brokerage in Mexico City.
For the remainder of 2009, Cemex faces $3.8 billion in maturities, most of which it plans to pay with money from asset sales and cash flow generation. Analysts think the company may have already paid, or refinanced, $300 million this year.
Cemex is believed to have met its obligations through March and may have nearly $400 million in cash left by the end of the second quarter. But, Credit Suisse said in a report on March 9, "The situation will be tighter for the following quarters, since we estimate the company will not have any cash beyond the minimum operating cash level on its balance sheet, and debt maturities should exceed cash generation." Analyst Vanessa Quiroga, who wrote the report, said on Friday that she had not changed her views.
Cemex faces maturities of $428 million between July and September and has $2.21 billion due in the fourth quarter. Cemex is one of Mexicos largest companies, along with state oil company Pemex and billionaire Carlos Slims Telmex and America Movil telephone operators.
TOO BIG TO FAIL?
Similar to the US governments concerns about financial institutions too big to fail, Mexican authorities may decide that Cemex is too big to be allowed to default on its debt, some analysts have said. A default by Cemex would hit Mexican pension funds that hold its debt, drive up financing costs for other Mexican companies and could pressure the already battered peso, which hit a 16-year low earlier this month.
Speculation that the government will not let Cemex fail has pushed Cemexs stock up more than 50 percent since March 9. "The magnitude of Cemexs debt is material for the Mexican economy," said a report from Actinver brokerage. "Excluding trade-related debt, Cemexs debt accounts for approximately 30 percent of loans to the Mexican private sector." Cemex has warned that its revolving credit facilities are fully drawn and that if its operating results worsen or if it is doesnt complete planned asset sales, it may not be able to comply with payments.