Standard & Poor's puts Cemex 'B-' rating on watch negative

Ratings agency Standard & Poor’s (S&P) may cut the credit rating on Cemex and its key operating subsidiaries following the cement major’s recently announced refinancing proposal. Cemex’s debt is rated B- by S&P.

Last week Cemex announced a proposal to refinance US$7.3bn in bank debt, including a three-year extension on debt due in 2014 and an initial US$1bn payment to lenders by March 31, 2013. Sources of payment may include select asset sales.

“If lenders approve the proposal, in our view, Cemex would face a tight schedule for raising the required resources, before the company faces an increase in short-term risk related to the March 2013 payment, which would pressure the ratings downward,” S&P said in a statement.

The announcement confirms S&P’s expectations that Cemex management  would focus on pursuing refinancing alternatives to its financing agreement.

S&P added: “In our view, the refinancing proposal on the US$7.25bn due 2014 under that  agreement is crucial for Cemex to avoid a default. However, the proposed  payment in 2013 could add significant short-term risks to the company as it is  mostly dependent on the completion of asset sales, because discretionary cash flow that we estimate at about US$200m during 2012 would not be  sufficient to meet the 2013 proposed payment. We believe that Cemex is committed to raising the required resources, but volatile market conditions  due to the eurozone debt crisis make it uncertain if the company can  successfully fulfill it.”

The refinancing proposal considers that if Cemex does not pay down US$1bn by March 31, 2013, the maturity date of the new financing agreement will  revert to February 14, 2014. Also, under the new agreement Cemex may, with a  two-thirds participating creditor approval, obtain a 90-day payment extension.