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Rating Action:

MOODY'S REVISES CEMEX S.A. de C.V.'s Ba1 RATINGS OUTLOOK TO POSITIVE FROM STABLE

26 May 2005
MOODY'S REVISES CEMEX S.A. de C.V.'s Ba1 RATINGS OUTLOOK TO POSITIVE FROM STABLE

Approximately $110 million in long-term debt securities affected

New York, May 26, 2005 -- Moody's Investors Service has revised the ratings outlook on Cemex S.A. de C.V.'s Ba1 ratings to positive from stable. Ratings affected include the company's Ba1 ratings on approximately $110 million in senior unsecured Euro notes and its senior implied rating.

The positive outlook reflects Moody's recognition that Cemex's management has begun to mitigate the significant near-term refinancing risk associated with RMC Group acquisition debt. Recently, the company extended the median debt maturity profile from 2.8 years, following the RMC acquisition, to an average life of around 4 years. Moody's believes continued progress in both lengthening the average debt maturity profile to a minimum of 5 years and diversifying the company's funding sources, which have been heavily dependent on bank financing, will reduce the company's financial risk profile and are necessary for achieving an upgrade in the company's ratings to investment grade.

The positive outlook also reflects Moody's belief that strong growth in consolidated revenue and free cash flow, which will continue to be primarily allocated towards absolute debt reduction of at least $1.2 billion in 2005 and additional incremental debt reduction over the intermediate term, will result in credit metrics that are consistent with a Baa3 rating. Specifically, over the next 12 months, Moody's could upgrade Cemex S.A. de C.V.'s Ba1 rating to Baa3 if, in addition to the lengthening of the average debt maturity to at least 5 years and the diversification of funding sources, it becomes evident the consolidated company will achieve lease adjusted debt-to-EBITDAR of under 3.0x, 20% retained cash flow to total debt, 15% free cash flow to total debt and 4.0x EBIT interest coverage. Moody's noted, however, that increased transparency with regard to the operating performance of the recently-acquired RMC Group assets will be required before an upgrade is achieved, given that the company has not filed public financial statements in almost a year. Moody's believes that increased transparency regarding the combined company's financial results will provide greater confidence that the company is successfully integrating the new assets while reducing the absolute level of debt outstanding and mitigating financial risk.

Historically, the two stand-alone ratings at Cemex S.A. de C.V. and Cemex Espana differed because of dissimilar credit profiles, separate guarantor groups that did not provide upstream nor downstream guarantees, and restrictions on the movement of cash between the two companies. Now, however, Moody's believes it is appropriate to analyze the company as a consolidated entity, with equalized ratings, given strong operating performance in Mexico has improved the credit profile of Cemex S.A. de C.V. and there are no longer any limitations on the movement of cash between the two companies.

Cemex's ratings are supported by the company's globally-diversified operations as a cement company with a leading vertical position in ready-mix concrete and aggregates production. The ratings also recognize Cemex's strong operating performance as evidenced by modest revenue growth, expanding operating margins and increasing free cash flow. Moody's anticipates there are significant potential cost reduction and working capital efficiencies at RMC, whose operations are largely in investment grade countries.

Over the near-term, Moody's believes that Cemex's legacy markets should continue to experience moderate operating performance improvement with increasing amounts of free cash flow, particularly due to the company's dominant market share in Mexico, where the company has above industry average margins, high return on capital invested and significant barriers to entry. Nevertheless, the ratings also recognize the business risks associated with the RMC acquisition, including a higher concentration in lower operating margin regions, the lower barrier to entry ready-mix concrete business, and high financial leverage. As well, while operations have benefited from improved economic conditions over the last year or so, the company remains exposed to economic cycles in many developed countries where revenue growth tends to track GDP growth.

Cemex, headquartered in Monterrey, Mexico, is a growing global building solutions company that provides building products to customers in more than 60 countries throughout the world.

New York
David Hamburger
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Mark Gray
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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