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Cemex: Paving the Hemisphere
Mexico Business / March 1995

By Larry Luxner

Mention Mexico to stockbrokers in Panama City or Port of Spain and the first company they're likely to think of is Cementos Mexicanos S.A.

That's because in the last two years, Cemex -- the world's fourth-largest cement producer -- has plunged into the Caribbean Basin and Latin America with a fury unmatched by any Mexican multinational in history. The Monterrey-based giant, led by Lorenzo Zambrano, has gobbled up all or parts of state-owned cement companies in Panama, Trinidad and Tobago, Venezuela and Cuba, adding to its previous -- and much larger -- investments in Spain and the United States. It also owns six Caribbean cement shipping terminals and at the moment is trying to buy a cement plant in Nicaragua.

While Cemex, like many other large Mexican companies, is reeling with hundreds of millions of dollars in foreign-exchange losses, those far-flung acquisitions may help the company through Mexico's latest economic crisis.

"Our strategy of not putting all our eggs in one basket is now proving to be right," boasts Cemex spokesman Sergio Camarena. "We're very proud of having the guts to take that decision seven years ago. Now that the Mexican market is in recession, the Spanish market is really strong." The company expects 50% of its $3 billion in revenue this year to come from outside Mexico.

Indeed, it wasn't long ago that Cemex upset Wall Street with its lofty acquisitions. Its $1.8 billion acquisition of two Spanish cement plants in 1992 enraged U.S. investors, who sopped up shares in Cemex thinking they were buying a pure play on the Mexican cement market.

But this year, Spain will probably account for $700 million in sales, up from $640 million in 1994. Likewise, U.S. sales are expected to rise from $300 million last year to $400 million in 1995. Cemex's Panama and Caribbean operations alone may generate more than $100 million in sales.

That should more than compensate for an expected 10% drop in Mexican demand for cement this year, thanks to the lingering effects of the peso crisis. The domestic situation is serious enough that Citibank and J.P. Morgan have agreed to roll over $350 million in existing dollar-denominated financing to avert a potential cash crunch at the company. Cemex is also negotiating to borrow an additional $150 million from Citibank. Without access to such funds, Cemex would have to pay interest rates of 20% or more for new peso loans.

But one Wall Street analyst says that with more than $1 billion in annual cash flow, Cemex has little to worry about.

"It's still a world-class company that's going to derive a very substantial portion of its revenues from abroad," observes Carlos Laboy, a Latin American equity analyst with New York-based brokerage firm Bear Stearns & Co. "While their cost of debt will certainly go up, I think their global plans and their vision remain firmly in place. If anything, diversifying its global portfolio makes even more sense today than it did a few months ago."

Founded in 1906, Cemex ranks as the largest cement manufacturer in the Americas and is also an important producer and distributor of ready-mix concrete and aggregates. The company has 18,000 employees, only 40% of whom are Mexican. Its main markets are in countries with a great need for infrastructure and a growing demand for housing.

The company began its global expansion a few years ago with the acquisition of Spain's two leading cement producers: Compañía Valenciana de Cementos Portland S.A. and La Auxiliar de la Construcción S.A. (Sanson). Under Cemex, Valenciana's operating margin has widened from 7% in 1992 to 12% in 1993, and jumped to 19% during the first half of 1994.

In the U.S., Cemex moved to acquire sand-and-gravel and ready-mix operations in California, Texas and Arizona, as well as several sea and rail terminals. Most recently, Cemex acquired a cement plant in New Braunfels, Texas, from Lafarge for $100 million in September 1994.

Cemex also set its sights on the Caribbean. In 1993, it began its $23 million acquisition of Scancem Industries Ltd., a process completed last year. The new company, known as Concem, operates six Caribbean cement shipping terminals: two in Haiti (Port-au-Prince and Cap Haitien), two in the Bahamas (Freeport and Nassau) and one each in Bermuda and the Cayman Islands.

Things really began hopping in March 1994 when Cemex acquired control of Vencemos, Venezuela's largest cement company, with annual sales of $300 million and annual cement production topping 3.7 million tons.

Then in July, Cemex paid the Trinidadian government $10 million for a 20% stake in Trinidad Cement Ltd. (TCL). This gave the Mexican giant two seats on the company's board of directors. The government still owns 9% of TCL, with the remaining shares trading publicly on the Caribbean Stock Exchange.

A month later, Cemex outbid Panamanian and Colombian companies for the acquisition of state-owned Cemento Bayano S.A. in Panama. Cemex paid the Panamanian government $59.7 million for the plant, which is located just outside Panama City and can grind up to 700,000 metric tons of clinker per year.

Roberto Martínez, an official with KPMG Peat Marwick's Policy Economics Group in Washington, D.C., says that the price paid per ton using Cemento Bayano's current capacity figures is among the highest in the industry. But he notes Cemex's investment is proving to be a wise one. "Panama is a booming construction market and all the revenue there is dollar-based, so that makes it even more attractive, especially now with the peso problems," Martínez says.

The Panama City has recently been transformed by skyscrapers and condominiums. "Over the last five to ten years, most of the construction has been residential and commer-cial. Now there's going to be a tremendous amount of infrastructure work," he says.

As the company itself stated in its annual report: "With this acquisition, Cemex further consolidates its position in the Caribbean market and advances its strategy of being the leading producer of distributor of cement in the region."

At the moment, Cemex is close to acquiring a state-owned cement plant in Nicaragua for $10 million. In neighboring Honduras, however, Cemex never even got its foot in the door. Twice the company has been brushed aside in its attempts to buy cement plants from the Honduran government. The first time, Cemex officials say, "they sold the company to the army." The second went to Honduran investors for $76 million; Cemex's offer of a $50 million debt-for-equity swap was ignored.

These days, Cemex is far more interested in Venezuela. Through Vencemos, Cemex controls 50% of the Venezuelan cement market as well as 30% of its concrete market. It has plants in Perpigalete, Maracaibo and Barquisimeto -- all close to major ports.

"From Venezuela, we are increasing exports to the Caribbean and the United States, and with those exports we are making up for whatever decrease has happened in the Venezuelan domestic market," Camarena says. "It seems to us that the Venezuelan market has basically touched bottom and is now much more stable than it was eight months ago."

In nearby Trinidad and Tobago, Cemex's 20% stake in TCL gives the small company access to advanced research and development. "We cannot afford to sit back and gloat on our past successes," TCL chairman Suresh Maharaj said in a prepared staetment. "We must align ourselves with a strong, international cement company that has significant influence in the regional and global cement industry."

In 1994, TCL produced 582,000 tons of cement and earned $8 million on sales of $34 million. Company official Arun Goyal, speaking from Port of Spain, says TCL employs 380 people. Roughly 58% of TCL's production is exported to Guyana and smaller Caribbean islands such as Grenada, St. Lucia, St. Vincent and St. Martin.

Not everything in Cemex's Caribbean portfolio, however, has earned the company friends.

Its takeover of a cement plant in Mariel, Cuba -- about 20 miles west of Havana -- has drawn the wrath of Stamford, Connecticut-based Lone Star Industries Inc., as well as a few Cuban exile groups.

The dispute began one year ago, when Cemex agreed to lend its technical and commercial expertise to a plant operated by Bancomext and the Cuban government. That infuriated David W. Wallace, chief executive of Lone Star, which owned the Mariel plant before it was expropriated by the Castro regime in 1962.

"They are operating our plant, which was taken at gunpoint by Castro," Wallace says. "We have nothing against Cemex, except they should know they're trafficking in stolen property."

Lone Star, a 100-year-old cement company with plants along the Mississippi and Ohio Rivers and annual sales of around $290 million, claims Cuba owes it $80 million for the plant. Wallace says he wrote to the chief officers of Cemex, seeking an explanation, but never got an answer. Camarena, who denies knowledge of any such correspondence, downplays the Cuba deal as merely a technical arrangement.

Wallace doesn't agree. He says Castro is "trying to get money for himself by selling other people's property," and that Cemex is actually operating the plant. "They owe us money and they never paid us," he says. "If anybody tries to bring in Cuban goods to the U.S., we'll seek to seize them."

That may be next to impossible, however. Even Wallace concedes that cement is a particularly difficult commodity to trace. "Once it's in the bag," he says, "it could be made in Mexico, Venezuela, Cuba or the United States."

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