Cemex Holdings Philippines Inc. (CHP) in a press release has disclosed that it had reached an agreement to amend its debt covenant with BDO. The debt agreement amendment was meant to defer the compliance of certain financial covenants until June 30, 2021. It could be surmised from that disclosure that had the financial covenants not been amended CHP may have not complied that certain covenant.
The COVID-19 pandemic may have worsen its operating and financial performance making it difficult to stay with the financial covenant with BDO.
The stock rights offering at 1.54 per share have raised additional capital of 12.8 Billion Pesos to CHP but 7.9 Billion of the new capital raised were used to pay the parent CEMEX.
It can be noted from CHP’s latest presentation that no additional funding from CEMEX was highlighted.
Despite all the negatives, CHP has seen gradual rise.
With the fundamentals so bad – negative free cash flows of 1.9 Billion Pesos and debt covenant amendments indicating a possible breach may not be the catalyst of CHP’s gradual rise in value.
We reviewed the latest reports and look for clues as to why CHP has been rising. It was noted that no new advances or loans from CEMEX was highlighted in the report after it has been paid 7.9 Billion Pesos. This could mean that CEMEX might be willing to let go of CHP. After all CEMEX has already repatriated its capital from CHP during its IPO years ago.
No funding support from CEMEX may indicate that it is willing or is putting CHP on the block to finally exit from the Philippines. Let it be noted that Lafarge Holcim, also a global cement giant, attempted to exit from the Philippines through the sale of its local unit to San Miguel Corporation (SMC).
It was reported in the ANC that an analyst predicted the PSEI to drift lower and may trigger possible Mergers & Acquisitions (M & A) for listed companies. CHP could be it.
CHP has drifted to a bite size. CHP has now a market capitalization of 15.11 Billion Pesos only about 4 Billion less to its debt to BDO. And speaking of BDO it was mentioned in that news that the SM group is a possible acquirer in a M & A play. In that same video it was blurted out that Henry “Big Boy” Sy Jr. was unloading SM shares in the market and that it was worth following.
Based on the body language in that video, it seems that the reporter, Mimie Ong, has gotten an information of a potential SM group (the Sy siblings or their affiliated companies) acquisition and its target. When she blurted out that Henry “Big Boy” Sy Jr. was unloading SM shares in the market and that it was worth following it was evident that it was already in her mind that it could be Henry “Big Boy” Sy Jr. who could be the acquirer and that it is worth following what Henry “Big Boy” Sy Jr. could be doing of his proceeds from his SM share sale.
What makes us conclude that if indeed SM or Henry “Big Boy” Sy Jr. is planning for an acquisition, CHP is the target is the fact that CHP has a big debt to BDO and that the debt might have the potential to go sour and that the debt covenant amendments is certainly an accommodation to CHP by BDO. Aside from that, Henry “Big Boy” Sy Jr. already owns or controls BIGBOSS Cement Inc.
We believe that their is M & A play behind the rise of CHP and that it could be Henry “Big Boy” Sy Jr. or the SM group as the acquirer. This is just our vain attempt to explain the surge in CHP but this could be true. We will follow this closely.
Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective. Accuretti Systems Inc. does not hold any shares of Cemex Holdings Philippines, BDO Universal Bank and SM Investments.