Cemex confirmed its reputation as a boundary pusher when it pulled off the $4.15 billion acquisition of UK peer RMC Group in March. But as remarkable was the financing, as Cemex took out the biggest loan ever by a Latin American company.
The $5.8 billion facility, for which Citigroup and Goldman Sachs acted as bookrunners, led to frenzy among lending banks. Twenty-eight banks were invited to participate in the first phase of syndication in October, and all but one placed commitments. This helped to raise over $10 billion. Eventually over 60 banks were involved in the loan in one capacity or another.
The key aspect of the transaction was Cemex's global success. Even though the cement company is based in Mexico, only one-third of its earnings are derived from its home market. The rest is driven through its operations, mostly in North America and Western Europe. As a result, the bookrunners were able to market Cemex as an international company.
"That was important," says Luke Gillam, an executive director in loans syndication at Goldman Sachs in London. "If Cemex was perceived purely as a Mexican cement company, then we wouldn't have been able to raise so much."
The deal was broken into several parts, including pieces in dollars, euros, sterling and pesos, and was issued by Cemex's Spanish, Dutch and Mexican units. The firm did not want to rely too much on either its local or international businesses, according to Gillam. "The company was optimizing its debt capacity without over-leveraging any one part of the corporate structure," he says.
Carlos Barona, a director at Citigroup, says: "We wanted to maximize overall market appetite and use debt debt capacity at both the Mexican and intnernational levels."
Most of the funding was driven through the Spanish business, which acts as the holding company for all of Cemex's international units. Cemex Hispania received two term loans of $1.15 billion each in dollars, euros and sterling. These loans will mature in three and five years. The Spanish unit also borrowed $1.5 billion in the three currencies for one year, with an option to extend for 12 months to refinance RMC's debt.
Cemex's Dutch unit received a $750 million, three-year loan and a $500 million, one-year revolver with an option to extend. Again both loans were denominated in dollars, euros and sterling. Cemex Mexico took out a $500 million, one-year term loan in dollars, extendable for six months; it also borrowed $250 million in pesos for three years.
The whole deal took just three months. "For a transaction of this size it was remarkably quick," says Mario Espinosa, managing director, Latin American debt capital markets at Citigroup.
One negative aspect of the deal was that it doubled Cemex's debts to over $10 billion. Initially that led all three big ratings agencies to put the cement firm on watch for a possible downgrade. However, as Gillam is quick to point out, none of the agencies carried out their threat, and Cemex remains investment grade across the board.
Borrower: Cemex
Date: October, 2004
Amount: $5.8 billion
Bookrunners: Citigroup; Goldman Sachs