Mexico's Cemex (NYSE:CX) was once very nearly the emerging star of the international world of cement. But the company, recently on the prowl for new financing, has now discovered that the world has changed a lot in just the past few years.
Cemex is the world's third largest cement company, behind France's LaFarge (OTC : LARGY. PK) and Holcim (OTC: HCMLY. PK). After a lengthy search for cash infusions abroad, it became clear that Cemex would have had to fork over an interest rate of between 15% and 20%, according to some reports, to sell its bonds last week. It'll therefore return to banks for a fresh supply of pesos.
Unfortunately, Cemex is paying penance for a number of recent acquisitions. Its latest purchase was last year's $15.3 billion devouring of Australia's Rinker Materials. The deal gave the company exposure to markets in such places as the United States, the U.K., and Spain -- just in time to see housing and construction slowdowns put a big crimp on those nation's economies.
In the wake of the deal, Cemex's net debt reached $17.8 million, or five times its most recent years' earnings before interest, taxes, depreciation, and amortization (EBITDA). Partly as a result, rating agencies Fitch and Standard & Poor's have reduced Cemex's bonds to a below-investment-grade BB+.
With the world's economy teetering, Cemex is hardly alone among struggling cement companies. In the U.S., Texas Industries (NYSE:TXI) shares have slipped a full 84% below their 52-week high. Beyond that, Eagle Materials (NYSE:EXP) -- which operates four domestic cement plants, along with gypsum wallboard plants -- has been especially hard-hit by the nation's housing debacle. The question now is how much lower these stocks can slide from their current levels.
I think Cemex is ultimately a strong company. If you're willing to buy into pessimism, give it a closer look.
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