OREANDA-NEWS. Fitch Ratings has affirmed CEMEX, S. A.B. de C. V.'s (CEMEX) Long-Term Issuer Default Rating (IDR) at 'BB-'. Fitch has also upgraded the company's National Scale Long-Term Rating to 'A(mex)' from 'A-(mex)' and affirmed the company's National Scale Short-Term rating at 'F2 (mex)'. The Rating Outlook remains Stable. A full list of rating actions follows at the end of this press release.

Key factors supporting CEMEX's National Scale rating upgrade and IDR affirmation include: the company's positive momentum in strong cash flow generation, improving volumes in key markets, and deleveraging strategy. The Stable Outlook reflects CEMEX's ability to deleverage through a combination of organic and inorganic strategic initiatives over the next several quarters despite economic uncertainty in several of its main markets.

KEY RATING DRIVERS

Strong Business Position

CEMEX's 'BB-' IDRs continue to reflect its strong and diversified business position. The company is one of the largest producers of cement, ready-mix and aggregates in the world. CEMEX's main geographic areas, in terms of EBITDA before intercompany eliminations, include: Mexico (39%), Central and South America (23%), the U. S. (19%), Europe (9%), and Asia, Middle East, and Africa (18%). The company's product and geographic diversification offset some of the volatility associated with the cyclical cement industry.

Improvement in Net Leverage

Fitch projects that CEMEX will generate about USD2.7 billion of EBITDA during 2016 and that the company's net leverage will be around 4.6x in 2016. Fitch's projections include cash inflows from asset sales of around USD300 million and USD500 million from the IPO of its Philippines subsidiary during 2016. CEMEX also signed an agreement to sell some of its assets in the U. S. for approximately USD400 million and has targeted additional potential asset sales which could further reduce gross debt levels.

Weak Stock Performance

The poor performance of CEMEX's stock price over the last 12 months negatively impacts the probability the company will be able convert more than USD1 billion of debt to equity. CEMEX has USD690 million of convertible debt due in 2018 and USD521 million due in 2020. The strike prices for these conversions are USD$8.92/ADS for the 2018 convertibles and $11.45/ADS for the 2020 convertibles, which compares with a current stock price of USD$6.86. An improved stock price above the company's 2018 convertibles strike price would result in a decline in net leverage to around 3.5x by 2018, absent additional asset sales.

FX Exposure Remains High

CEMEX's exposure to FX risks remains high as 83% of the company's debt is denominated in USD while approximately 24% of its EBITDA generation is projected to be in USD for 2016. The company's currency mismatch was a key driver in limiting CEMEX's ability to deleverage during the second half of 2015 due to the depreciation of currencies like the Mexican peso and Colombian peso. Fitch projects local currency depreciations during 2015 negatively impacted CEMEX's net leverage ratio by approximately 0.5x.

Continued Free Cash Flow Generation

Fitch expects CEMEX's free cash flow generation to remain above USD800 million during 2016 and 2017, which compares favourably to free cash flow generation of USD587 million in 2015. Keys to stronger FCF generation during 2016 include durable price increases in key markets, continued cost reduction measures, continued working capital improvements, lower interest expense, and lower cash taxes. A reversal of volume growth in markets such as the U. S., Mexico, Colombia, or Europe could offset some of the strong positive free cash flow generation during 2017.

Growth in EBITDA Margins

CEMEX's EBITDA margins were 18.2% during 1Q16, which was a 120 basis point (bps) improvement compared to 1Q15. Fitch projects CEMEX's EBITDA margins will remain above 19% during 2016 as continued EBITDA growth in the U. S. coupled with continued companywide cost reductions should result in sustained profitability for the year.

Exposure to Cement Sector Volatility

The cyclical nature of the cement industry poses risks to CEMEX's ability to deleverage organically over the medium term. CEMEX's geographic diversification, integrated operations, and pricing power in several markets are major aspects in the company's ability to navigate swift declines in volumes in the event of an economic downturn. Offsetting CEMEX's strong business position are the financial risks associated with its weaker capital structures when compared to other major cement players.

KEY ASSUMPTIONS

--U. S. cement sales volumes increase mid-single digits in 2016;

--Mexico cement sales volumes increase low-single digits in 2016;

--Consolidated sales volume growth of low-single digits in 2016;

--EBITDA margin above 19% for 2016;

--Capital expenditures of approximately USD650 million in 2016;

--Positive FCF generation in 2016 and 2017.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Rating downgrades are not likely during 2016 as CEMEX's credit protections remain consistent with the category despite underperformance by some key business units. CEMEX received an unfavorable ruling by the Spanish tax authorities during 2014 that could result in a payment of EUR455 million. If the company is unsuccessful in its appeal, this fine would hinder its ability to deleverage and could lead to a negative rating action if the payment coincides with sluggishness in other key markets.

--A loss of the positive momentum in the U. S. market would have a material impact upon the company's credit profile and could pressure net leverage to around 6.0x and/or gross leverage around 6.5x, which could result in a negative rating action.

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Net leverage at or less than 4.0x or gross leverage at or less than 4.5x could lead to an upgrade of both the IDR and the company's notes to 'BB'.

--Fitch projects that CEMEX's EBITDA in its U. S. operations will grow to USD650 million by 2016 from USD565 million in 2015. This projection incorporates an expectation that single-family and multi-family housing starts in the U. S. will total 1.2 million in 2016. Growth beyond this figure would be positive for the company's U. S. business and would accelerate its deleveraging process.

--Cement demand in Mexico has underperformed Fitch's expectations since 2014, and this has offset improvements in operating cash flow in the U. S. and in Asia. EBITDA generated by CEMEX in Mexico declined approximately 3% to USD966 million in 2015 compared to USD999 million in 2014. Fitch currently projects EBITDA in this market to recover to around USD985 million in 2016 as volume recovery is expected following price increases during the year. EBITDA generation in Mexico beyond Fitch's expectations could further boost deleveraging and result in a positive Outlook.

LIQUIDITY

CEMEX has a manageable amortization schedule as a result of its aggressive refinancing efforts over the past few years. The company had USD1.3 billion of cash and marketable securities compared to zero short-term debt as of March 31, 2016. Most of the company's marketable securities are held in U. S. and Mexican government bonds. Approximately 83% of CEMEX's debt is denominated in USD and 16% in Euros. CEMEX also had full availability under its USD735 million committed revolving credit facility as of March 31, 2016.

FULL LIST OF RATING ACTIONS

Fitch has taken the following rating actions:

CEMEX S. A.B. de C. V.

--Long-Term Foreign - and Local-Currency IDRs affirmed at

'BB-';

--Senior secured notes due 2018, 2019, 2021, 2022, 2023, 2025, and 2026 affirmed at 'BB-';

--National scale Long-Term Rating upgraded to 'A(mex)' from

'A-(mex)';

--Senior unsecured certificates due 2017 upgraded to 'A(mex)' from 'A-(mex)';

--National scale Short-Term rating affirmed at 'F2(mex)'.

In addition to the aforementioned ratings, Fitch also affirms at 'BB-' ratings on the guaranteed debt issued by:

CEMEX Materials LLC, a limited liability company incorporated in the U. S.:

--Senior Notes due 2025.

CEMEX Finance LLC, a limited liability company incorporated in the U. S.:

--Senior secured notes due 2021, 2022, and 2024.

C5 Capital (SPV) Limited, a British Virgin Island restricted purpose company:

--Senior secured perpetual notes.

C8 Capital (SPV) Limited, a British Virgin Island restricted purpose company:

--Senior secured perpetual notes.

C10 Capital (SPV) Limited, a British Virgin Island restricted

Purpose company:

--Senior secured perpetual notes.

C-10 EUR Capital (SPV) Limited, a British Virgin Island

Restricted purpose company:

--Senior secured perpetual notes.