Fernando Gonzalez: Why don’t you take the part of what you are renegotiating with banks and the strategy you’ve been developing this year — and I will take the second part of the question related to the — how to call it the ideal or the care or the fire debt level. So why don’t you start with the first part?
Maher Al-Haffar: Yes. So thanks, Ann. I mean first, we — our currency split right now is about 75% in dollars and the other 25% is in primarily euros and Mexican vessels. As you know, we have about $300 million equivalent in Mexican pesos. The way that we manage our funding strategy is really getting the lowest cost that we can get in the different markets. We believe in dollar funding because at the end of the day, we think that most of our cash flow is fairly dollarized, as has been demonstrated by the pricing strategies that we have implemented successfully recently. The transaction that we did in Mexico was taking advantage of very interesting liquidity situation where despite the fact that local pricing was relatively high when we swapped it to the dollars, it actually represented almost a 20% reduction in our spread compared to a straight issuance in dollars today.
So it was a very attractive funding cost and we use that money to essentially reduce our exposure under the under the term loan that we have with the bank facility. The way that we cover our currency risk is primarily through our hedging strategy through the derivatives through the currency derivatives market. We manage a derivatives position notional in Mexican pesos against dollars that is roughly commensurate with the operating cash flow generation of our Mexican business. So we run a position of about $1.5 billion. in primarily straight forward. We sometimes do cap forwards in order to reduce the cost. We sometimes use options to reduce the cost we prefer, frankly, to manage our hedging strategy that way rather than borrowing outright in pesos because that is much more expensive.
Derivatives. So far, we’re running at almost half the carry cost on average. So it’s economically much better. We can be much more agile. Obviously, we’re not traders. We’re following very strict rules on how we put the position we lay our positions every month based on free cash flow generation out of our Mexican business. So that’s how we manage the currency risk, and we run a pretty kind of leverage neutral position in the positions that we have in place. And we do have a single borrowing in $300 million, like I said, that is in pesos, we’re leaving it in pesos because when we took that borrowing, we swapped the vessel rate into a fixed rate very attractive borrowing rate, which is like 4.75%. Today, TI rates are like 1.5% — so at that rate, it was very attractive to have a loan borrowing in pesos.
So that’s kind of the — now whether we will continue accessing the local market, the answer is yes. We — as you know, we’ve just been upgraded to A in the local market. We’re hoping to get higher rating as we rerate. The Mexican market is quite deep. We are a big issuer. We should be a frequent issuer in that market. Now going to the credit agreement. Credit Agreement, we have all the commitments, and we’re really going towards closing by the end of the month in a couple of days essentially. And there, I would like to say a few things. One is that we reduced the amount of the term loan by about $0.5 billion. So we’re now — the term loan will be $1 billion with a maturity by 28 million 5-year maturity, 36 months, and then we have amortizations of 20%.
And then we also managed to increase the amount of our committed revolver in pretty challenging times from the bank’s perspective. So we’re very pleased with the support that the banks have given us. And now we have $2 billion in a committed revolver — and the committed revolver very importantly, has a bullet payment 5 years, so it’s very attractive in terms of providing liquidity — very important is that we had the same grid pricing that we had 2 years ago. We’re paying less fees than we did 2 years ago. Also very importantly, as you know, and when — as of June, we had to switch from LIBOR to SOFR and the initial SOFR spread that was obtained by — that was agreed to by the market was, I believe, 26 basis points above LIBOR above. So for plus 26 basis points.
We also managed to negotiate a reduction in that spread. So bottom line, at the end of the day, I feel that we’re getting some very good price discovery in the bank market in our bank facility. And that is being reflected in the pricing and in the availability of the revolving credit facility — the committed revolving credit facility. And that should provide us with more than adequate liquidity in the medium term. And then I’ll turn it to Fernando to address the leverage issue.
Fernando Gonzalez: Yes. I think the I think about the leverage ratio, I can describe it in the following manner. Since more than a decade, we have been insisting in gaining back our investment grade. And to be precise, it’s been like 14 years. Since we started insisting, basically, when we said gaining back investment grade, we were always thinking in a leverage ratio as defined in the FA below 3x. Of course, we don’t create ourselves. That’s the job done by the rating agencies. But it’s been some time now that we believe we are in the range of our objective of gaining back investment grade. Now — if you remember, in 2020, we communicated adjustments to our strategy. And then on top of continued allocating resources to continue reducing our leverage ratio — we started with the idea of investing in growth.
And the basic definition was to invest in growth in cement ready-mix, aggregates and added urbanization solutions. And we mentioned mainly in the U.S. and Europe, to some extent, in Mexico. And an important part of the strategy we communicated is that we were going to be growing through both on investments and acquisitions. — which is what we have been doing already for 3 years, around 3 years. So I think with that definition, — the leverage ratio we are having by the end of the year, very close to 2x. We think that we feel let’s say, comfortable with it. Now the good financial results of this year did accelerate our deleveraging process. So do we have a target of a very or extremely low leverage ratio? No, we don’t. What we have is the target of growing in a very disciplined manner and keeping our leverage ratio?
No, we don’t. What we have is the target of, growing in a very disciplined manner and keeping our leverage ratio always in the investment grade parameters. What are those parameters? Well, it could be around more or less around 2.5 times around that figure. So I think there is a ceiling to the leverage ratio that we are willing to take, again, not putting at risk the investment grade that we are expecting sometime early next year, but at the same time, giving us the opportunity to allocate capital in a different manner, as we’ve been saying, to start paying systematically dividends to shareholders and to, and to do some additional, very accretive investments in growth. As we’ve been commenting, the bolt-on investments we’ve been doing, except for the very large cement expansion projects, are investments with a very attractive profile.
Paybacks of four to six years and IRRs of around 40%. So I think it’s been a good combination and we will for sure continue having or looking for this equilibrium in the parameters that I have already mentioned. Q – Thank you very much.
Fernando Gonzalez : Thank you.
Lucy Rodriguez : Thanks, Anne. Thanks, Fernando. Okay, and we have another question which is coming from the webcast from Paul Roger from Exane B&P Paribas. Several peers have provided a lot more information on their carbon capture pipeline. How many CCUS projects is CEMEX involved in? When will the group’s first industrial-scale project go live? And what kind of CapEx and OpEx does CEMEX plan to invest on this solution to 2030?
Fernando Gonzalez : Let me comment directly on the question and then I think it might be helpful to share some additional context to the objectives we have on reducing CO2. Specifically, we have seven CO2 capture and storage reuse projects in the company. Four out of the seven you can consider them as industrial level projects. The other three are projects in which we are trying and proving certain technologies because we will live through the first investments in CO2 capture, we would like to learn on the different options and the different characteristics. Those options have in capturing and storing CO2. The four industrial projects we have, all of them are either in Europe or the U.S. In the case of the U.S., it’s in Victorville in California and Balcones in Texas.
