16)

FINANCIAL INSTRUMENTS

16.1)

SHORT-TERM AND LONG-TERM DEBT

As of December 31, 2018 and 2017, CEMEX’s consolidated debt summarized by interest rates and currencies, was as follows:


		2018									2017
		Short-term			Long-term			Total			Short-term			Long-term			Total
Floating rate debt	Ps		262			66,819			67,081	Ps		7,282			53,389			60,671
Fixed rate debt			621			115,255			115,876			9,691			123,633			133,324

	Ps		883			182,074			182,957	Ps		16,973			177,022			193,995

Effective rate¹
Floating rate			7.8	%		3.6	%					6.1	%		3.0	%
Fixed rate			4.2	%		5.6	%					4.8	%		5.7	%


	2018									2017
Currency	Short- term		Long- term		Total		Effective rate¹			Short- term		Long- term		Total		Effective rate¹
Dollars		589		114,696		115,285		5.8	%		6,206		107,508		113,714		5.9	%
Euros		12		52,368		52,380		3.3	%		9,705		54,906		64,611		3.5	%
Pounds		—		8,631		8,631		2.9	%		—		9,141		9,141		2.6	%
Philippine pesos		52		5,041		5,093		4.6	%		—		5,408		5,408		4.6	%
Other currencies		230		1,338		1,568		5.9	%		1,062		59		1,121		6.2	%

		883		182,074		182,957					16,973		177,022		193,995

1	In 2018 and 2017, represents the weighted-average nominal interest rate of the related debt agreements.

As of December 31, 2018 and 2017, CEMEX’s consolidated debt summarized by type of instrument, was as follow:


2018		Short- term		Long- term			2017		Short- term		Long- term
Bank loans							Bank loans
Loans in foreign countries, 2019 to 2024	Ps		614		6,436		Loans in foreign countries, 2018 to 2022	Ps		910		5,439
Syndicated loans, 2020 to 2022			—		62,460		Syndicated loans, 2018 to 2022			—		50,132

			614		68,896					910		55,571

Notes payable							Notes payable
Medium-term notes, 2023 to 2026			—		110,157		Medium-term notes, 2018 to 2026			224		133,949
Other notes payable, 2019 to 2025			140		3,150		Other notes payable, 2018 to 2025			154		3,187

			140		113,307					378		137,136

Total bank loans and notes payable			754		182,203		Total bank loans and notes payable			1,288		192,707
Current maturities			129		(129	)	Current maturities			15,685		(15,685	)

	Ps		883		182,074			Ps		16,973		177,022

As of December 31, 2018 and 2017, discounts, fees and other direct costs incurred in the issuance of CEMEX’s outstanding notes payable and bank loans for US$65 and US$84, respectively, reduce the balance of notes payable and are amortized to financing expense over the maturity of the related debt instruments under the amortized cost method.

As of December 31, 2018 and 2017, from total debt of Ps182,957 and Ps193,995, respectively, approximately 79% in 2018 and 80% in 2017 was held in the Parent Company, 15% in 2018 and 15% in 2017 was in finance subsidiaries in the Netherlands and the United States, and 6% in 2018 and 5% in 2017 was in other countries.

Changes in consolidated debt for the years ended December 31, 2018, 2017 and 2016 were as follows:


		2018			2017			2016
Debt at beginning of year	Ps		193,995			236,238			229,343
Proceeds from new debt instruments			43,765			93,620			48,748
Debt repayments			(53,025	)		(131,446	)		(89,792	)
Foreign currency translation and accretion effects			(1,778	)		(4,417	)		47,939

Debt at end of year	Ps		182,957			193,995			236,238

As of December 31, 2018 and 2017, as presented in the table above of debt by type of instrument, approximately 38% and 29%, respectively, of CEMEX’s total indebtedness, was represented by bank loans, of which the most significant portion corresponded to those balances under CEMEX’s facilities agreement entered into with 20 financial institutions on July 19, 2017 for an amount in different currencies equivalent to approximately US$4,050 at the origination date (the “2017 Credit Agreement”), as described elsewhere in this note.

As of December 31, 2018 and 2017, non-current notes payable for Ps113,307 and Ps137,136, respectively, was detailed as follows:


Description	Date of issuance		Issuer^{1, 2}		Currency		Principal amount		Rate¹			Maturity Date		Repurchased amount US$			Outstanding amount³ US$		2018		2017
April 2026 Notes⁸		16/Mar/16		CEMEX, S.A.B. de C.V.		Dollar		1,000		7.75	%		16/Apr/26		—			1,000		Ps19,575		19,568
July 2025 Notes		02/Apr/03		CEMEX Materials LLC		Dollar		150		7.70	%		21/Jul/25		—			150		3,042		3,061
March 2025 Notes		03/Mar/15		CEMEX, S.A.B. de C.V.		Dollar		750		6.125	%		05/May/25		—			750		14,696		14,691
January 2025 Notes		11/Sep/14		CEMEX, S.A.B. de C.V.		Dollar		1,100		5.70	%		11/Jan/25		(29	)		1,071		20,994		20,988
December 2024 Notes⁷		05/Dec/17		CEMEX, S.A.B. de C.V.		Euro		650		2.75	%		05/Dec/24		—			745		14,572		15,257
June 2024 Notes⁸		14/Jun/16		CEMEX Finance LLC		Euro		400		4.625	%		15/Jun/24		—			458		8,968		9,390
April 2024 Notes		01/Apr/14		CEMEX Finance LLC		Dollar		1,000		6.00	%		01/Apr/24		(10	)		990		18,995		18,924
March 2023 Notes		03/Mar/15		CEMEX, S.A.B. de C.V.		Euro		550		4.375	%		05/Mar/23		—			630		12,356		12,938
October 2022 Notes⁶		12/Oct/12		CEMEX Finance LLC		Dollar		1,500		9.375	%		12/Oct/22		(1,500	)		—		—		—
January 2022 Notes⁴		11/Sep/14		CEMEX, S.A.B. de C.V.		Euro		400		4.75	%		11/Jan/22		(480	)		—		—		9,434
April 2021 Notes⁸		01/Apr/14		CEMEX Finance LLC		Euro		400		5.25	%		01/Apr/21		(480	)		—		—		—
January 2021 Notes^{5, 8}		02/Oct/13		CEMEX, S.A.B. de C.V.		Dollar		1,000		7.25	%		15/Jan/21		(1,000	)		—		—		6,606
December 2019 Notes^{6, 8}		12/Aug/13		CEMEX, S.A.B. de C.V.		Dollar		1,000		6.50	%		10/Dec/19		(1,000	)		—		—		—
October 2018 Variable Notes^5, 8		02/Oct/13		CEMEX, S.A.B. de C.V.		Dollar		500		L+475bps			15/Oct/18		(500	)		—		—		6,154
Other notes payable																				109		125

																			Ps	113,307		137,136

The letter “L” included above refers to LIBOR, which represents the London Inter-Bank Offered Rate, variable rate used in international markets for debt denominated in U.S. dollars. As of December 31, 2018 and 2017, 3-Month LIBOR rate was 2.8076% and 1.6943%, respectively. The contraction “bps” means basis points. One hundred basis points equal 1%.

Unless otherwise indicated, all issuances are fully and unconditionally guaranteed by CEMEX, S.A.B. de C.V., CEMEX México, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, S.A., CEMEX Asia B.V., CEMEX Corp., CEMEX Africa & Middle East Investments B.V., CEMEX Finance LLC, CEMEX France Gestion, (S.A.S.), CEMEX Research Group AG and CEMEX UK. In March 2018, CEMEX Egyptian Investments B.V. changed its legal name to CEMEX Africa & Middle East Investments B.V.

3	Presented net of all outstanding notes repurchased and held by CEMEX’s subsidiaries.

4	On January 10, 2018, CEMEX completed the purchase of the outstanding amount of the January 2022 Notes for an aggregate principal amount of €400 using available funds from the issuance of the December 2024 Notes by means of an offer communicated on November 28, 2017.

5	In March 2018, CEMEX early redeemed the outstanding amount of the October 2018 Variable Notes and the January 2021 Notes for US$313 and US$341, respectively.

6	In December 2017, CEMEX repurchased the outstanding amount of the December 2019 Notes for an aggregate principal amount of US$611. During September and October 2017, CEMEX repurchased US$1,044 aggregate principal amount of the October 2022 Notes that remained outstanding.

7	On December 5, 2017, CEMEX issued €650 of 2.75% senior secured notes due December 5, 2024 (the “December 2024 Notes”). The proceeds were used to repay other indebtedness.

In May 2017, CEMEX redeemed the remaining €400 of aggregate principal amount of the April 2021 Notes. Moreover, in February 2017, CEMEX repurchased US$385 aggregate principal amount of the January 2021 Notes and US$90 of the December 2019 Notes. In addition, during 2016, using available funds from the issuance of the April 2026 Notes, the June 2024 Notes, the sale of assets and cash flows provided by operating activities, CEMEX completed the purchase of US$178 principal amount of the October 2018 Variable Notes and US$242 principal amount of the January 2021 Notes, among other debt repurchases incurred that year with those resources.

During 2018, 2017 and 2016, as a result of the debt transactions incurred including exchange offers and tender offers to replace and/or repurchase existing debt instruments, CEMEX paid premiums, fees and issuance costs for a combined amount of US$51 (Ps1,006), US$251 (Ps4,930) and US$196 (Ps4,061), respectively, of which US$51 (Ps1,006) in 2018, US$212 (Ps4,160) in 2017 and US$151 (Ps3,129) in 2016, associated with the extinguished portion of the exchanged or repurchased notes, were recognized in the income statement in each year within “Financial expense”. In addition, US$39 (Ps770) in 2017 and US$45 (Ps932) in 2016, corresponding to issuance costs of new debt and/or the portion of the combined premiums, fees and issuance costs treated as a refinancing of the old instruments, adjusted the carrying amount of the new debt instruments, and are amortized over the remaining term of each instrument. Moreover, proportional fees and issuance costs related to the extinguished debt instruments for US$4 (Ps87) in 2018, US$16 (Ps310) in 2017 and US$37 (Ps767) in 2016 that were pending for amortization were recognized in the income statement of each year as part of “Financial expense.”

The maturities of consolidated long-term debt as of December 31, 2018, were as follows:


		2018
2020	Ps		11,523
2021			23,603
2022			30,175
2023			15,342
2024 and thereafter			101,431

	Ps		182,074

As of December 31, 2018, CEMEX had the following lines of credit, of which, the only commited portion referes to the revolving credit facility, at annual interest rates ranging between 0.75% and 8.50%, depending on the negotiated currency:


		Lines of credit		Available
Other lines of credit in foreign subsidiaries	Ps		9,440		7,286
Other lines of credit from banks			11,294		8,956
Revolving credit facility			22,303		16,211

	Ps		43,037		32,453

2017 Credit Agreement and 2014 Credit Agreement

On July 19, 2017, the Parent Company and certain subsidiaries entered into the 2017 Credit Agreement with 20 financial institutions for an amount in different currencies equivalent to US$4,050 at the origination date, the proceeds from which were used to refinance in full the US$3,680 then outstanding under the 2014 Credit Agreement and other debt repayments, allowing CEMEX to increase the average life of its syndicated bank debt with a final maturity in July 2022. All tranches under the 2017 Credit Agreement have substantially the same terms, including an applicable margin over the benchmark interest rate of between 125 to 350 basis points, depending on CEMEX’s consolidated debt Leverage Ratio; and the tranches share the same guarantors and collateral package as the original tranches under the 2014 Credit Agreement and other secured debt obligations of CEMEX. As of December 31, 2018 and 2017, total commitments under the 2017 Credit Agreement included US$2,746, €741 and £344, in both years, out of which about US$1,135 in both years were in a revolving credit facility. All tranches under the 2017 Credit Agreement amortize in five equal semi-annual payments beginning in July 2020, except for the commitments under the revolving credit which have a five-year maturity.

All tranches under the 2017 Credit Agreement have substantially the same terms, including an applicable margin over LIBOR or EURIBOR, as applicable, of between 125 to 350 basis points, depending on the Leverage Ratio (as defined below) of CEMEX, as follows:


Consolidated Leverage Ratio		Applicable margin
> = 5.50x		350 bps
< 5.00x > 4.50x		300 bps
< 4.50x > 4.00x		250 bps
< 4.00x > 3.50x		212.5 bps
< 3.50x > 3.00x		175 bps
< 3.00x > 2.50x		150 bps
< 2.50x		125 bps

The 2017 Credit Agreement also modified the consolidated Leverage Ratio and consolidated Coverage Ratio limits as described below in the financial covenants section.

The balance of debt under the 2017 Credit Agreement and previously under the 2014 Credit Agreement is guaranteed by CEMEX México, S.A. de C.V., CEMEX Concretos, S.A. de C.V., Empresas Tolteca de México, S.A. de C.V., New Sunward Holding B.V., CEMEX España, S.A., CEMEX Asia B.V., CEMEX Corp., CEMEX Africa & Middle East Investments B.V., CEMEX Finance LLC, CEMEX France Gestion, (S.A.S.), CEMEX Research Group AG and CEMEX UK. In addition, the debt under these agreements (together with all other senior capital markets debt issued or guaranteed by CEMEX, and certain other preceding facilities) is also secured by a first-priority security interest in: (a) substantially all the shares of CEMEX México, S.A. de C.V., CEMEX Operaciones México, S.A. de C.V, New Sunward Holding B.V., CEMEX Trademarks Holding Ltd. and CEMEX España, S.A. (the “Collateral”); and (b) all proceeds of such Collateral.

For the years ended December 31, 2018, 2017 and 2016, under both the 2017 Credit Agreement and the 2014 Credit Agreement, CEMEX was required to comply with the following thresholds: (a) the aggregate amount allowed for capital expenditures cannot exceed US$1,000 per year excluding certain capital expenditures, and, joint venture investments and acquisitions by CHP and its subsidiaries and CLH and its subsidiaries, which capital expenditures, joint venture investments and acquisitions at any time then incurred are subject to a separate aggregate limit for each of CHP and CLH of US$500 (or its equivalent); and (b) the amounts allowed for permitted acquisitions and investments in joint ventures cannot exceed US$400 per year. Nonetheless, such limitations do not apply if capital expenditures or acquisitions do not exceed free cash flow generation or are funded with proceeds from equity issuances or asset disposals.

In addition to the restrictions mentioned above, and subject in each case to the permitted negotiated amounts and other exceptions, CEMEX is also subject to a number of negative covenants that, among other things, restrict or limit its ability to: (i) create liens; (ii) incur additional debt; (iii) change CEMEX’s business or the business of any obligor or material subsidiary (in each case, as defined in the 2017 Credit Agreement); (iv) enter into mergers; (v) enter into agreements that restrict its subsidiaries’ ability to pay dividends or repay intercompany debt; (vi) acquire assets; (vii) enter into or invest in joint venture agreements; (viii) dispose of certain assets; (ix) grant additional guarantees or indemnities; (x) declare or pay cash dividends or make share redemptions while the Leverage Ratio remains above 4.0 times; and (xi) enter into speculative derivatives transactions. The 2017 Credit Agreement contains several affirmative covenants that, among other things, require CEMEX to provide periodic financial information to its lenders. However, a number of those covenants and restrictions will automatically cease to apply or become less restrictive if CEMEX so elects when: (i) CEMEX’s Leverage Ratio (as defined hereinafter) for the two most recently completed quarterly testing periods is less than or equal to 3.75 times; and (ii) no default under the 2017 Credit Agreement is continuing. At that point the Leverage Ratio must not exceed 3.75 times. Restrictions that will cease to apply when CEMEX satisfies such conditions include the capital expenditure limitations mentioned above and several negative covenants, including limitations on CEMEX’s ability to declare or pay cash dividends and distributions to shareholders, limitations on CEMEX’s ability to repay existing financial indebtedness, certain asset sale restrictions, and restrictions on exercising call options in relation to any perpetual bonds CEMEX issues. At such time, several baskets and caps relating to negative covenants will also increase, including permitted financial indebtedness, permitted guarantees and limitations on liens. However, CEMEX cannot assure that it will be able to meet the conditions for these restrictions to cease to apply prior to the final maturity date under the 2017 Credit Agreement.

In addition, the 2017 Credit Agreement, and previously the 2014 Credit Agreement, contains events of default, some of which may occur and are outside of CEMEX’s control such as expropriation, sequestration and availability of foreign exchange. As of December 31, 2018 and 2017, CEMEX was not aware of any event of default. CEMEX cannot assure that in the future it will be able to comply with the restrictive covenants and limitations contained in the 2017 Credit Agreement. CEMEX’s failure to comply with such covenants and limitations could result in an event of default, which could materially and adversely affect CEMEX’s business and financial condition.

Financial Covenants

The 2017 Credit Agreement and previously the 2014 Credit Agreement requires CEMEX to comply with financial ratios, which mainly include: a) the consolidated ratio of debt to Operating EBITDA (the “Leverage Ratio”); and b) the consolidated ratio of Operating EBITDA to interest expense (the “Coverage Ratio”). These financial ratios are calculated according to the formulas established in the debt contracts using the consolidated amounts under IFRS.

As of December 31, 2018, CEMEX must comply with a Coverage Ratio and a Leverage Ratio for each period of four consecutive fiscal quarters as follows:


Period	Coverage Ratio		Period	Leverage Ratio
For the period ending on December 31, 2018 up to and including the period ending on March 31, 2020		> = 2.50	For the period ending on December 31, 2018 up to and including the period ending on March 31, 2019		< = 4.75
			For the period ending on June 30, 2019 up to and including the period ending on March 31, 2020		< = 4.50
For the period ending on June 30, 2020 and each subsequent reference period		> = 2.75	For the period ending on June 30, 2020 and each subsequent reference period		< = 4.25

CEMEX’s ability to comply with these ratios may be affected by economic conditions and volatility in foreign exchange rates, as well as by overall conditions in the financial and capital markets. For the compliance periods ended as of December 31, 2018, 2017 and 2016, under the 2017 Credit Agreement and the 2014 Credit Agreement, as applicable, the main consolidated financial ratios were as follows:

Consolidated financial ratios

2018

2017

2016

Leverage Ratio^{1, 2}

Limit

< = 4.75

< = 5.25

< = 6.00

Calculation

3.84

3.85

4.22

Coverage Ratio³

Limit

> = 2.50

> = 1.85

Calculation

4.41

3.46

3.18

The Leverage Ratio is calculated in pesos by dividing “Funded debt” by pro forma Operating EBITDA for the last twelve months as of the calculation date. Funded debt equals debt, as reported in the statement of financial position, excluding finance leases, components of liability of convertible subordinated notes, plus perpetual debentures and guarantees, plus or minus the fair value of derivative financial instruments, as applicable, among other adjustments.

Pro forma Operating EBITDA represents, all calculated in pesos, Operating EBITDA for the last twelve months as of the calculation date, plus the portion of Operating EBITDA referring to such twelve-month period of any significant acquisition made in the period before its consolidation in CEMEX, minus Operating EBITDA referring to such twelve-month period of any significant disposal that had already been liquidated.

3	The Coverage Ratio is calculated in pesos using the amounts from the financial statements, by dividing the pro forma Operating EBITDA by the financial expense for the last twelve months as of the calculation date. Financial expense includes interest accrued on the perpetual debentures.

CEMEX will classify all of its outstanding debt as current debt in its statement of financial position if: 1) as of any measurement date CEMEX fails to comply with the aforementioned financial ratios; or 2) the cross default clause that is part of the 2017 Credit Agreement is triggered by the provisions contained therein; 3) as of any date prior to a subsequent measurement date CEMEX expects not to be in compliance with such financial ratios in the absence of: a) amendments and/or waivers covering the next succeeding 12 months; b) high probability that the violation will be cured during any agreed upon remediation period and be sustained for the next succeeding 12 months; and/or c) a signed refinancing agreement to refinance the relevant debt on a long-term basis. Moreover, concurrent with such classification of debt as short-term, the noncompliance of CEMEX with the financial ratios agreed upon pursuant to the 2017 Credit Agreement or, in such event, the absence of a waiver of compliance or a negotiation thereof, after certain procedures upon CEMEX’s lenders’ request, they would call for the acceleration of payments due under the 2017 Credit Agreement. That scenario would have a material adverse effect on CEMEX’s operating results, liquidity or financial position.

16.2)

OTHER FINANCIAL OBLIGATIONS

As of December 31, 2018 and 2017, other financial obligations in the consolidated statement of financial position are detailed as follows:


		2018							2017
		Short-term		Long-term		Total			Short-term		Long-term		Total
I. Convertible subordinated notes due 2020	Ps		—		10,097		10,097	Ps		—		9,985		9,985
II. Convertible subordinated notes due 2018			—		—		—			7,115		—		7,115
III. Mandatorily convertible securities due 2019			374		—		374			323		371		694
IV. Liabilities secured with accounts receivable			11,770		—		11,770			11,313		—		11,313
V. Finance leases			595		1,931		2,526			611		2,503		3,114

	Ps		12,739		12,028		24,767	Ps		19,362		12,859		32,221

Financial instruments convertible into CEMEX’s shares contain components of liability and equity, which are recognized differently depending upon the currency in which the instrument is denominated and the functional currency of the issuer (note 2.6).

I.	Optional convertible subordinated notes due 2020

During 2015, the Parent Company issued US$521 aggregate principal amount of 3.72% convertible subordinated notes due in March 2020 (the “2020 Convertible Notes”) as a result of exchanges or settlements of other convertible notes. The 2020 Convertible Notes, which are subordinated to all of CEMEX’s liabilities and commitments, are convertible into a fixed number of the Parent Company’s ADSs at any time at the holder’s election and are subject to antidilution adjustments. The aggregate fair value of the conversion option as of the issuance dates which amounted to Ps199 was recognized in “Other equity reserves.” As of December 31, 2018 and 2017, the conversion price per ADS for the 2020 Convertible Notes was approximately 11.01 dollars in both years. After antidilution adjustments, the conversion rate for the 2020 Convertible Notes as of December 31, 2018 and 2017 was 90.8592 ADS per each 1 thousand dollars principal amount of such notes in both years.

II.

Optional convertible subordinated notes due in 2018

On March 15, 2011, the Parent Company closed the offering of US$690 principal amount of 3.75% convertible subordinated notes due in 2018 (the “2018 Convertible Notes”). The notes were subordinated to all of CEMEX’s liabilities and commitments. The notes were convertible into a fixed number of the Parent Company ADSs and are subject to antidilution adjustments. On June 19, 2017, the Parent Company agreed with certain institutional holders on the early conversion of US$325 of the 2018 Convertible Notes in exchange for the issuance of approximately 43 million ADSs, which included the number of additional ADSs issued to the holders as non-cash inducement premiums. As a result of the early conversion, the liability component of the converted notes of Ps5,468 was reclassified from other financial obligations to other equity reserves. In addition, the Parent Company increased common stock for Ps4 and additional paid-in capital for Ps7,059 against other equity reserves, and recognized expense for the inducement premiums paid in shares of Ps769, recognized within “Financial income and other items, net” in the income statement for 2017. After the early conversion of notes described above, the US$365 of the 2018 Convertible Notes that remained outstanding, were repaid in cash at their maturity on March 15, 2018. Concurrent with the offering of the 2018 Convertible Notes, a portion of the net proceeds from this transaction was used to fund the purchase of capped call options, which, when purchased, were generally expected to reduce the potential dilution cost to CEMEX upon the potential conversion of such notes (note 16.4).

III.

Mandatorily convertible securities due in 2019

In December 2009, the Parent Company exchanged debt into US$315 principal amount of 10% mandatorily convertible securities in pesos with maturity in 2019 (the “2019 Mandatorily Convertible Securities”). Reflecting antidilution adjustments, the notes will be converted at maturity or earlier if the price of the CPO reaches Ps26.22 into approximately 236 million CPOs at a conversion price of Ps17.48 per CPO. Holders have an option to voluntarily convert their securities on any interest payment date into CPOs. The conversion option embedded in these securities is treated as a stand-alone derivative liability at fair value through the statement of operations (note 16.4).

IV.

Liabilities secured with accounts receivable

As mentioned in note 9, as of December 31, 2018 and 2017, in connection with CEMEX’s sale of trade accounts receivable under securitization programs and/or factoring programs with recourse, the funded amounts of such receivables sold are recognized in “Other financial obligations” in the statement of financial position.

V.	Finance leases

CEMEX has several operating and administrative assets, including buildings and mobile equipment, under finance lease contracts. Future payments associated with these contracts are presented in note 23.5.

16.3)

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial assets and liabilities

The carrying amounts of cash, trade accounts receivable, other accounts receivable, trade accounts payable, other accounts payable and accrued expenses, as well as short-term debt, approximate their corresponding estimated fair values due to the short-term maturity and revolving nature of these financial assets and liabilities.

The estimated fair value of CEMEX’s long-term debt is level 2 and is either based on estimated market prices for such or similar instruments, considering interest rates currently available for CEMEX to negotiate debt with the same maturities, or determined by discounting future cash flows using market-based interest rates currently available to CEMEX.

The fair values determined by CEMEX for its derivative financial instruments are level 2. There is no direct measure for the risk of CEMEX or its counterparties in connection with the derivative instruments. Therefore, the risk factors applied for CEMEX’s assets and liabilities originated by the valuation of such derivatives were extrapolated from publicly available risk discounts for other public debt instruments of CEMEX and its counterparties.

The estimated fair value of derivative instruments fluctuates over time and is determined by measuring the effect of future relevant economic variables according to the yield curves shown in the market as of the reporting date. These values should be analyzed in relation to the fair values of the underlying transactions and as part of CEMEX’s overall exposure attributable to fluctuations in interest rates and foreign exchange rates. The notional amounts of derivative instruments do not represent amounts of cash exchanged by the parties, and consequently, there is no direct measure of CEMEX’s exposure to the use of these derivatives. The amounts exchanged are determined on the basis of the notional amounts and other terms included in the derivative instruments.

As of December 31, 2018 and 2017, the carrying amounts of financial assets and liabilities and their respective fair values were as follows:


		2018					2017
		Carrying amount		Fair value			Carrying amount		Fair value
Financial assets
Derivative instruments (notes 13.2 and 16.4)	Ps		297		297	Ps		794		794
Other investments and non-current accounts receivable (note 13.2)			4,974		4,974			4,964		4,964

	Ps		5,271		5,271	Ps		5,758		5,758

Financial liabilities
Long-term debt (note 16.1)	Ps		182,074		179,740	Ps		177,022		184,220
Other financial obligations (note 16.2)			12,028		11,924			12,859		13,381
Derivative instruments (notes 16.4 and 17)			406		406			402		402

	Ps		194,508		192,070	Ps		190,283		198,003

Fair Value Hierarchy

As of December 31, 2018 and 2017, assets and liabilities carried at fair value in the consolidated statements of financial position are included in the following fair value hierarchy categories:


2018		Level 1		Level 2		Level 3		Total
Assets measured at fair value
Derivative instruments (notes 13.2 and 16.4)	Ps		—		297		—		297
Investments in strategic equity securities (note 13.2)			217		—		—		217
Other investments at fair value through earnings (note 13.2)			—		428		—		428

	Ps		217		725		—		942

Liabilities measured at fair value
Derivative instruments (notes 16.4 and 17)	Ps		—		406		—		406


2017		Level 1		Level 2		Level 3		Total
Assets measured at fair value
Derivative instruments (notes 13.2 and 16.4)	Ps		—		794		—		794
Investments in strategic equity securities (note 13.2)			275		—		—		275
Other investments at fair value through earnings (note 13.2)			—		441		—		441

	Ps		275		1,235		—		1,510

Liabilities measured at fair value
Derivative instruments (notes 16.4 and 17)	Ps		—		402		—		402

16.4)

DERIVATIVE FINANCIAL INSTRUMENTS

During the reported periods, in compliance with the guidelines established by its Risk Management Committee, the restrictions set forth by its debt agreements and its hedging strategy (note 16.5), CEMEX held derivative instruments, with the objectives of, as the case may be of: a) changing the risk profile or fixed the price of fuels and electric energy; b) foreign exchange hedging; c) hedge of forecasted transactions; and d) other corporate purposes.

As of December 31, 2018 and 2017, the notional amounts and fair values of CEMEX’s derivative instruments were as follows:


		2018					2017
		Notional amount		Fair value			Notional amount		Fair value
I. Net investment hedge	US$		1,249		2			1,160		47
II. Foreign exchange forwards related to forecasted transactions			—		—			381		3
III. Equity forwards on third party shares			111		2			168		7
IV. Interest rate swaps			1,126		(8	)		137		16
V. Fuel price hedging			122		(14	)		72		20
VI. 2019 Mandatorily Convertible Securities			—		(1	)		—		(20	)

	US$		2,608		(19	)		1,918		73

The caption “Financial income and other items, net” includes gains and losses related to the recognition of changes in fair values of the derivative instruments during the applicable period and that represented net gains of US$38 (Ps692) in 2018, net gains of US$9 (Ps161) in 2017 and net gains of US$17 (Ps317) in 2016.

I.	Net investment hedge

As of December 31, 2018 and 2017, there are US$/MXP foreign exchange forward contracts under a program planned to be up to US$1,250, with monthly revolving settlement dates from 1 to 24 months. The average life of these contracts is approximately one year. For accounting purposes under IFRS, CEMEX has designated this program as a hedge of CEMEX’s net investment in Mexican pesos, pursuant to which changes in fair market value of these instruments are recognized as part of other comprehensive income in equity. For the years 2018 and 2017, these contracts generated losses of US$59 (Ps1,157) and gains of US$6 (Ps110), respectively.

II.

Foreign exchange forwards related to forecasted transactions

As of December 31, 2017, CEMEX held US$/Euro foreign exchange forward contracts maturing on January 10, 2018, negotiated to maintain the euro value of a portion of proceeds from debt issuances maintained in U.S. dollars that were used to repurchase debt denominated in euros (note 16.1). In addition, in February 2017 CEMEX settled US$/MXP foreign exchange forward contracts negotiated to hedge the U.S. dollar value of the proceeds from the expected sale of pumping assets in Mexico (note 4.3). For the years 2018, 2017 and 2016, the aggregate results of these instruments, including the effects resulting from positions entered and settled during the year, generated losses of US$1 (Ps21) in 2018, losses of US$17 (Ps337) in 2017 and gains of US$10 (Ps186) in 2016, recognized within “Financial income and other items, net” in the income statement.

III.

Equity forwards on third party shares

As of December 31, 2018 and 2017, CEMEX maintained equity forward contracts with cash settlement in March 2020 and March 2019, respectively, over the price of 20.9 million shares of GCC in 2018 and 31.5 million in 2017, in connection with the sale of CEMEX’s remaining GCC shares in September 2017 (note 13.1). During 2018, CEMEX early settled a portion of these contracts for 10.6 million shares. Changes in the fair value of these instruments and early settlement effects generated gains of US$25 (Ps436) in 2018 and losses of US$24 (Ps463) in 2017 recognized within “Financial income and other items, net” in the income statement.

In addition, until October 2016, CEMEX maintained a forward contract over the price of 59.5 million CPOs of Axtel in connection with the Company’s investment at fair value through the income statement (note 13.2). Changes in the fair value of this instrument generated a loss of US$2 (Ps30) in 2016 recognized within “Financial income and other items, net” in the income statement.

IV.

Interest rate swap contracts

As of December 31, 2018, CEMEX held interest rate swaps for a notional amount of US$1,000 the fair value of which represented a liability of US$19 (Ps373), negotiated in June 2018 to fix interest payments of existing bank loans bearing floating rates. The contracts mature in June 2023. For accounting purposes under IFRS, CEMEX designated these contracts as cash flow hedges, pursuant to which, changes in fair value are initially recognized as part of other comprehensive income in equity and are subsequently recycled through financial expense as interest expense on the related bank loans is accrued. For the year 2018, changes in fair value of these contracts generated losses of US$19 (Ps364) in the income statement.

As of December 31, 2018 and 2017, CEMEX had an interest rate swap for a notional amount of US$126 and US$137, respectively, maturing in September 2022 associated with an agreement entered by CEMEX for the acquisition of electric energy in Mexico, the fair value of which represented assets of US$11 (Ps216) and US$16 (Ps314), respectively. Pursuant to this instrument, during the tenure of the swap and based on its notional amount, CEMEX receives fixed rate of 5.4% and pays LIBOR. Changes in the fair value of this interest rate swap generated losses of US$6 (Ps114) in 2018, US$6 (Ps114) in 2017 and US$6 (Ps112) in 2016, recognized in the income statement for each period.

V.	Fuel price hedging

As of December 31, 2018 and 2017, CEMEX maintained forward contracts negotiated to hedge the price of certain fuels, including diesel, gas and coal, as solid fuel, in several operations for aggregate notional amounts of US$122 (Ps2,398) and US$72 (Ps1,415), respectively, with an estimated aggregate fair value representing liabilities of US$14 (Ps275) in 2018 and assets of US$20 (Ps394) in 2017. By means of these contracts, for its own consumption only, CEMEX fixed the price of these fuels over certain volumes representing a portion of the estimated consumption of such fuels in several operations. These contracts have been designated as cash flow hedges of diesel, gas or coal consumption, and as such, changes in fair value are recognized temporarily through other comprehensive income and are recycled to operating expenses as the related fuel volumes are consumed. For the years 2018, 2017 and 2016, changes in fair value of these contracts recognized in other comprehensive income represented losses of US$35 (Ps697), gains of US$4 (Ps76) and gains of US$15 (Ps311), respectively.

VI.

2019 Mandatorily Convertible Securities and options on the Parent Company’s own shares

In connection with the 2019 Mandatorily Convertible Securities (note 16.2); considering that the securities are denominated in pesos and the functional currency of the Parent Company’s division that issued the securities is the dollar (note 2.4), CEMEX separated the conversion option embedded in such instruments and recognized it at fair value through the income statement, which as of December 31, 2018 and 2017, resulted in a liability of US$1 (Ps20) and US$20 (Ps393), respectively. Changes in fair value generated a gain of US$20 (Ps391) in 2018, a gain of US$19 (Ps359) in 2017 and a loss of US$29 (Ps545) in 2016.

In addition, on March 15, 2011, the Parent Company entered into a capped calls, considering antidilution adjustments, over 80 million CEMEX’s ADSs maturing in March 2018 in connection with the 2018 Convertible Notes, by means of which, at maturity of the notes, originally CEMEX would receive in cash the excess between the market price and the strike price of approximately 8.57 dollars per ADS, with a maximum appreciation per ADS of 5.27 dollars. CEMEX paid aggregate premiums of US$104. During August 2016, CEMEX amended 58.3% of the total notional amount of the capped calls to lower the exercise price in exchange for reducing the number of underlying options. As a result, CEMEX retained capped calls over 71 million ADSs. Changes in the fair value of these instruments generated gains of US$37 (Ps725) in 2017 and gains of US$44 (Ps818) in 2016, recognized within “Financial income and other items, net” in the income statement. During 2017, CEMEX unwound and settled all its capped calls receiving in exchange US$103 in cash.

16.5)

RISK MANAGEMENT

Enterprise risks may arise from any of the following situations: i) the potential change in the value of assets owned or reasonably anticipated to be owned, ii) the potential change in value of liabilities incurred or reasonably anticipated to be incurred, iii) the potential change in value of services provided, purchase or reasonably anticipated to be provided or purchased in the ordinary course of business, iv) the potential change in the value of assets, services, inputs, products or commodities owned, produced, manufactured, processed, merchandised, leased or sell or reasonably anticipated to be owned, produced, manufactured, processed, merchandising, leasing or selling in the ordinary course of business, or v) any potential change in the value arising from interest rate or foreign exchange rate exposures arising from current or anticipated assets or liabilities.

In the ordinary course of business, CEMEX is exposed to commodities risk, including the exposure from inputs such as fuel, coal, petcoke, fly-ash, gypsum and other industrial materials which are commonly used by CEMEX in the production process, and expose CEMEX to variations in prices of the underlying commodities. To manage this and other risks, such as credit risk, interest rate risk, foreign exchange risk, equity risk and liquidity risk, considering the guidelines set forth by the Parent Company’s Board of Directors, which represent CEMEX’s risk management framework and that are supervised by several Committees, CEMEX’s management establishes specific policies that determine strategies oriented to obtain natural hedges to the extent possible, such as avoiding customer concentration on a determined market or aligning the currencies portfolio in which CEMEX incurred its debt, with those in which CEMEX generates its cash flows.

As of December 31, 2018 and 2017, these strategies are sometimes complemented with the use of derivative financial instruments as mentioned in note 16.4, such as the commodity forward contracts on fuels negotiated to fix the price of these underlying commodities.

The main risk categories are mentioned below:

Credit risk

Credit risk is the risk of financial loss faced by CEMEX if a customer or counterparty to a financial instrument does not meet its contractual obligations and originates mainly from trade accounts receivable. As of December 31, 2018 and 2017, the maximum exposure to credit risk is represented by the balance of financial assets. Management has developed policies for the authorization of credit to customers. Exposure to credit risk is monitored constantly according to the payment behavior of debtors. Credit is assigned on a customer-by-customer basis and is subject to assessments which consider the customers’ payment capacity, as well as past behavior regarding due dates, balances past due and delinquent accounts. In cases deemed necessary, CEMEX’s management requires guarantees from its customers and financial counterparties with regard to financial assets.

The Company’s management has established a policy of low risk tolerance which analyzes the creditworthiness of each new client individually before offering the general conditions of payment terms and delivery. The review includes external ratings, when references are available, and in some cases bank references. Thresholds of purchase limits are established for each client, which represent the maximum purchase amounts that require different levels of approval. Customers that do not meet the levels of solvency requirements imposed by CEMEX can only carry out transactions by paying cash in advance. As of December 31, 2018, considering CEMEX’s best estimate of potential expected losses based on the ECL model developed by CEMEX (note 9), the allowance for expected credit losses was Ps2,336.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates, which only affects CEMEX’s results if the fixed-rate long-term debt is measured at fair value. All of CEMEX’s fixed-rate long-term debt is carried at amortized cost and therefore is not subject to interest rate risk. CEMEX’s accounting exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates, which, if such rates were to increase, may adversely affect its financing cost and the results for the period.

Nonetheless, it is not economically efficient to concentrate on fixed rates at a high point when the interest rates market expects a downward trend. That is, there is an opportunity cost for continuing to pay a determined fixed interest rate when the market rates have decreased and the entity may obtain improved interest rate conditions in a new loan or debt issuance. CEMEX manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to reduce its interest costs. In addition, when the interest rate of a debt instrument has turned relatively high as compared to current market rates, CEMEX intends to renegotiate the conditions or repurchase the debt, to the extent the net present value of the expected future benefits from the interest rate reduction would exceed the cost and commissions that would have to be paid in such renegotiation or repurchase of debt.

As of December 31, 2018 and 2017, approximately 37% and 31%, respectively, of CEMEX’s long-term debt was denominated in floating rates at a weighted-average interest rate of LIBOR plus 241 basis points in 2018 and 268 basis points in 2017. As of December 31, 2018 and 2017, if interest rates at that date had been 0.5% higher, with all other variables held constant, CEMEX’s net income for 2018 and 2017 would have reduced by US$19 (Ps366) and US$18 (Ps353), respectively, as a result of higher interest expense on variable rate denominated debt. This analysis does not include the effect of interest rate swaps held by CEMEX during 2018 and 2017.

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. CEMEX’s exposure to the risk of changes in foreign exchange rates relates primarily to its operating activities. Due to its geographic diversification, CEMEX’s revenues and costs are generated and settled in various countries and in different currencies. For the year ended December 31, 2018, approximately 22% of CEMEX’s net sales, before eliminations resulting from consolidation, were generated in Mexico, 26% in the United States, 8% in the United Kingdom, 6% in France, 4% in Germany, 2% in Spain, 2% in Poland, 2% in the Rest of Europe region, 4% in Colombia, 2% in Panama, 1% in Costa Rica, 1% Caribbean TCL, 2% in the Rest of South, Central America and the Caribbean region, 2% in Philippines, 1% in Egypt, 1% in the Rest of Asia, Middle East and Africa and 7% in CEMEX’s other operations.

Foreign exchange gains and losses occur through monetary assets or liabilities in a currency different from its functional currency, and are recorded in the consolidated income statements, except for exchange fluctuations associated with foreign currency indebtedness directly related to the acquisition of foreign entities and exchange fluctuations in related parties’ long-term balances denominated in foreign currency that are not expected to be settled in the foreseeable future, which are reported in the statement of other comprehensive income. As of December 31, 2018 and 2017, excluding from the sensitivity analysis the impact of translating the net assets of foreign operations into CEMEX’s reporting currency, considering a hypothetic 10% strengthening of the dollar against the Mexican peso, with all other variables held constant, CEMEX’s net income for 2018 and 2017 would have decreased by US$63 (Ps1,240) and US$119 (Ps2,343), respectively, as a result of higher foreign exchange losses on CEMEX’s dollar-denominated net monetary liabilities held in consolidated entities with other functional currencies. Conversely, a hypothetic 10% weakening of the U.S. dollar against the Mexican peso would have the opposite effect.

As of December 31, 2018, approximately 63% of CEMEX’s financial debt was Dollar-denominated, 29% was Euro-denominated, 5% was Pound-denominated and 3% was Philippine peso-denominated. Therefore, CEMEX had a foreign currency exposure arising mainly from the Dollar-denominated and Euro-denominated financial debt versus the several currencies in which CEMEX’s revenues are settled in most countries in which it operates. The amounts of Pound-denominated financial debt and Philippine peso-denominated financial debt outstanding as of December 31, 2018, are closely related to the amount of revenues generated in such currencies and/or, in the case of the Euro-denominated financial debt, the amount of CEMEX’s net assets denominated in such currencies; therefore, CEMEX considers that the foreign currency risk related to these amounts of debt is low. Nonetheless, CEMEX cannot guarantee that it will generate sufficient revenues in Dollars, Euros, Pounds and Philippine pesos from its operations to service these obligations. As of December 31, 2018 and 2017, CEMEX had not implemented any derivative financing hedging strategy to address this foreign currency risk. Nonetheless, CEMEX may enter into derivative financing hedging strategies in the future if either of its debt portfolio currency mix, interest rate mix, market conditions and/or expectations changes.

As of December 31, 2018 and 2017, CEMEX’s consolidated net monetary assets (liabilities) by currency are as follows:


		2018
		Mexico			United States			Europe			South, Central America and the Caribbean			Asia, Middle East and Africa			Others¹			Total
Monetary assets	Ps		8,400			9,961			13,163			6,046			10,216			2,997			50,783
Monetary liabilities			19,798			33,464			40,153			10,841			12,223			200,731			317,210

Net monetary assets (liabilities)²		Ps	(11,398	)		(23,503	)		(26,990	)		(4,795	)		(2,007	)		(197,734	)		(266,427	)

Out of which:
Dollars	Ps		(560	)		(23,507	)		153			(947	)		22			(117,677	)		(142,516	)
Pesos			(10,838	)		4			—			(6	)		—			(5,469	)		(16,309	)
Euros			—			—			(10,571	)		13			40			(52,942	)		(63,460	)
Pounds			—			—			(18,241	)		—			—			(8,609	)		(26,850	)
Other currencies			—			–			1,669			(3,855	)		(2,069	)		(13,037	)		(17,292	)

	Ps		(11,398	)		(23,503	)		(26,990	)		(4,795	)		(2,007	)		(197,734	)		(266,427	)


		2017
		Mexico			United States			Europe			South, Central America and the Caribbean			Asia, Middle East and Africa			Others¹			Total
Monetary assets	Ps		11,798			9,453			14,182			7,347			9,780			5,163			57,723
Monetary liabilities			17,505			32,158			45,675			12,016			11,522			221,579			340,455

Net monetary assets (liabilities)²	Ps		(5,707	)		(22,705	)		(31,493	)		(4,669	)		(1,742	)		(216,416	)		(282,732	)

Out of which:
Dollars	Ps		(1,097	)		(22,710	)		39			(126	)		221			(133,530	)		(157,203	)
Pesos			(4,610	)		4			24			—			—			(7,745	)		(12,327	)
Euros			—			—			(10,155	)		2			—			(58,452	)		(68,605	)
Pounds			—			—			(19,358	)		—			—			(9,119	)		(28,477	)
Other currencies			—			1			(2,043	)		(4,545	)		(1,963	)		(7,570	)		(16,120	)

	Ps		(5,707	)		(22,705	)		(31,493	)		(4,669	)		(1,742	)		(216,416	)		(282,732	)

1	Includes the Parent Company, CEMEX’s financing subsidiaries, as well as Neoris N.V., among other entities.

2	Includes assets held for sale and liabilities directly related with these assets considering that such items will be realized in the short term.

In addition, considering that the Parent Company’s functional currency for all assets, liabilities and transactions associated with its financial and holding company activities is the dollar (note 2.4), there is foreign currency risk associated with the translation of subsidiaries’ net assets denominated in different currencies (peso, euro, pounds and other currencies) into dollars. When the dollar appreciates, the value of CEMEX’s net assets denominated in other currencies decreases in terms of dollars, generating negative foreign currency translation and reducing stockholders’ equity. Conversely, when the dollar depreciates, the value of CEMEX’s net assets denominated in other currencies would increase in terms of dollars generating the opposite effect. As mentioned in note 16.4, CEMEX has implemented a long-term program for up to US$1,250 to hedge foreign currency translation in connection with its net assets denominated in pesos.

Equity risk

Equity risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in the market price of CEMEX, S.A.B. de C.V.’s and/or third party’s shares. As described in note 16.4, considering specific objectives, CEMEX has entered into equity forward contracts on third-party shares, as well as capped calls based on the price of CEMEX, S.A.B. de C.V.’s own ADSs. Under these equity derivative instruments, there is a direct relationship from the change in the fair value of the derivative with the change in price of the underlying share. All changes in fair value of such derivative instruments are recognized in the income statement as part of “Financial income and other items, net.” During 2017, all outstanding capped calls based on the price of CEMEX, S.A.B. de C.V.’s own ADSs were early settled.

As of December 31, 2018 and 2017, the potential change in the fair value of CEMEX’s forward contracts in GCC shares that would result from a hypothetical, instantaneous decrease of 10% in the market price of GCC shares in dollars, with all other variables held constant, CEMEX’s net income would have reduced by US$11 (Ps210) in 2018 and US$14 (Ps283) in 2017, as a result of additional negative changes in fair value associated with these forward contracts. A 10% hypothetical increase in the price of GCC shares would have generated approximately the opposite effect.

In addition, even though the changes in fair value of CEMEX’s embedded conversion option in the Mandatorily Convertible Notes 2019 denominated in a currency other than the functional issuer’s currency affect the income statement, this do not imply any risk or variability in cash flows, considering that through their exercise, CEMEX will settle a fixed amount of debt with a fixed number of shares. As of December 31, 2018 and 2017, the potential change in the fair value of the embedded conversion options in the Mandatorily Convertible Notes 2019 that would result from a hypothetical, instantaneous increase of 10% in the market price of CEMEX’s CPOs, with all other variables held constant, would have decreased CEMEX’s net income by US$1 (Ps16) in 2018 and decreased by US$9 (Ps180) in 2017 as a result of additional negative changes in fair value associated with this option. A 10% hypothetical decrease in the CEMEX CPO price would generate approximately the opposite effect.

Liquidity risk

Liquidity risk is the risk that CEMEX will not have sufficient funds available to meet its obligations. In addition to cash flows provided by its operating activities, in order to meet CEMEX’s overall liquidity needs for operations, servicing debt and funding capital expenditures and acquisitions, CEMEX relies on cost-cutting and operating improvements to optimize capacity utilization and maximize profitability, as well as borrowing under credit facilities, proceeds of debt and equity offerings, and proceeds from asset sales. CEMEX is exposed to risks from changes in foreign currency exchange rates, prices and currency controls, interest rates, inflation, governmental spending, social instability and other political, economic and/or social developments in the countries in which it operates, any one of which may materially affect CEMEX’s results and reduce cash from operations. The maturities of CEMEX’s contractual obligations are included in note 23.5.

As of December 31, 2018, current liabilities, which included Ps13,622 of current maturities of debt and other financial obligations, exceed current assets by Ps22,891. For the year ended December 31, 2018, CEMEX generated net cash flows provided by operating activities from continuing operations of Ps26,545, after payments of interest and income taxes. The Company’s management considers that CEMEX will generate sufficient cash flows from operations. In addition, as of December 31, 2018, CEMEX has committed available lines of credit under its 2017 Credit Agreement, which includes the revolving credit facility and an undrawn tranche for a combined amount of Ps16,211 (US$825), as well as CEMEX’s proven capacity to continually refinance and replace its short-term obligations, will enable CEMEX to meet any liquidity risk in the short term.

As of December 31, 2018 and 2017, the potential requirement for additional margin calls under our different commitments is not significant.