Fitch Rates CEMEX's Notes 'BB-(EXP)'
(The following statement was released by the rating agency) CHICAGO, June 08 (Fitch) Fitch Ratings has assigned an expected rating of 'BB-(EXP)' to CEMEX S.A.B. de C.V.'s (CEMEX) proposed EUR400 million secured notes issued through its subsidiary CEMEX Finance LLC. Proceeds from the notes will be used for general corporate purposes, including liability management. The guarantors for the notes will be CEMEX, S.A.B. de C.V., CEMEX Mexico, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca deMexico, S.A. de C.V., New Sunward Holding B.V., CEMEX Espana, S.A., Cemex Asia B.V., CEMEX Corp., Cemex Egyptian Investments B.V., Cemex Egyptian Investments II B.V., CEMEX France Gestion (S.A.S.), Cemex Research Group AG, Cemex Shipping B.V., and CEMEX UK. The notes will enjoy the same collateral package as the creditors under CEMEX's Credit Agreement. KEY RATING DRIVERS Leverage to Remain High Fitch projects CEMEX's net leverage will remain unchanged in 2016 at around 5x, absent asset sales and new equity from conversion of convertibles and CEMEX's planned Philippines public offering. Challenges to organic deleveraging include low single digit volume growth in many markets and the weak performance of CEMEX's equity preventing the anticipated debt to equity conversion. Targeted asset sales of approximately USD1.0 - 1.5 billion over the next 18 to 24 months coupled with the IPO of its Philippines operations would lower leverage by around 0.7x. Weak Stock Performance The poor performance of CEMEX's stock price has lowered the probability that the company will be convert more than USD1 billion of debt to equity. CEMEX has USD690 million of convertible debt due in 2018 and USD521 million due in 2020. The strike prices for these conversions are USD8.92/ADS for the 2018 convertibles and $11.45/ADS for the 2020 convertibles, which compares with a current stock price of USD6.61. Continued Free Cash Flow Generation: Fitch expects CEMEX's free cash flow generation growth to remain above USD600 million in 2016. Keys to positive FCF in 2016 include strong price increases in key markets, continued cost reduction measures, reduced working capital cycle, lower interest expense, and lower cash taxes. Sluggish volume growth in Mexico, Colombia, and Europe will partially offset some of the strong positive free cash flow generation. Strong Business Position: CEMEX's 'BB-' IDRs continue to reflect its strong and diversified business position. The company is one of the largest producers of cement, ready-mix and aggregates in the world. Key markets include the U.S., Mexico, Colombia, Panama, Spain, Egypt, Germany, France, Poland, the U.K., and the Philippines. The company's product and geographic diversification offset some of the volatility associated with the cyclical cement industry. Growth in EBITDA Margins: CEMEX's EBITDA margins were 18.2% during 1Q16, which was a 120 basis point (bps) improvement compared to 1Q15. Fitch projects CEMEX's EBITDA margins will remain above 18% in 2016 as continued EBITDA growth in the U.S. coupled with continued companywide cost reductions will result in sustained profitability for the year. Improvements in U.S. Market: CEMEX's main markets during 2015, in terms of EBITDA, were Mexico (39%), Central and South America (23%), the U.S. (19%), Europe (9%), and Asia, Middle East, and Africa (18%) before others and intercompany eliminations. CEMEX's U.S. EBITDA was USD109 million in 1Q16, which represents a 71% increase from 1Q15. KEY ASSUMPTIONS --U.S. cement sales volumes increase mid-single digits in 2016; --Mexico cement sales volumes increase low-single digits in 2016; --Consolidated sales volume growth of low-single digits in 2016;
--Capital expenditures of approximately USD700 million in 2016;
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