Semen Padang bosses rebel against shareholders<\/p>\n
Vincent Lingga, The Jakarta Post, Jakarta<\/p>\n
The imbroglio over state-owned PT Semen Padang cement
\nmanufacturer in West Sumatra took another twist after the
\ncompany's management refused to convene an extraordinary
\nshareholders meeting to replace its board of directors.<\/p>\n
It is now already one month after state-owned PT Semen Gresik,
\nwhich owns 99.99 percent of Semen Padang, asked for the meeting.
\nBased on the company's statutes, publicly-listed Semen Gresik can
\nask for an injunction from the district court in Padang to force
\nthe Semen Padang management to implement the shareholders'
\nrequest.<\/p>\n
However, informed sources said Semen Gresik seemed doubtful
\nthat the district court would have the courage to issue such an
\norder because Semen Padang, with support from the governor and
\nthe provincial legislature, has stepped up its campaign for a
\ntotal spin off from Semen Gresik.<\/p>\n
That is quite a bizarre, chaotic situation and a blatant
\nviolation of the property rights of the Semen Padang
\nshareholders, including the investing public through their
\nownership of 23.46 percent of Semen Gresik and Cemex Asia
\nHoldings Ltd. of Mexico with 25.53 percent.<\/p>\n
The Semen Padang management, headed by Ikhdan Nizar, has taken
\nan increasingly rebellious stance since receiving the order from
\nSemen Gresik, going all out to defend its position.<\/p>\n
In the meantime, the company, burdened with heavy short-term
\ndebt, may default on Rp 627 (US$67 million) billion in loan
\nrepayments due this year.<\/p>\n
The management and board of commissioners have asked for
\nsupport from the West Sumatra governor and legislature to oppose
\nthe shareholders' order and even helped organize mass
\ndemonstrations in the province early last month to build up
\npublic opinion and support for its campaign.<\/p>\n
They shamelessly argued that since Semen Padang was now under
\nthe control of the West Sumatra administration and legislature,
\nthe shareholders could not ask for any change in the management
\nwithout prior consultation with the governor.<\/p>\n
The directors seemed to be too senseless and mindless to
\nrealize that the move by a group of West Sumatra people last
\nOctober to unilaterally take "control" of Semen Padang and the
\nlegislature's decision to endorse the action, were entirely
\nillegal and did nothing to change the legal status of the
\ncompany.<\/p>\n
Citing the 1995 Law on Limited Liability Corporations, the
\ncommissioners and management argued that the board of directors
\ncould be replaced before the end of their tenure only if they
\nperformed poorly.<\/p>\n
The management flaunted its achievements by reporting a 20.86
\npercent rise in sales revenues to Rp 1.35 trillion (US$145
\nmillion) in 2001 and a 4.4 percent increase in gross operating
\nprofit to Rp 185.78 billion.<\/p>\n
However, an analysis of Semen Padang's financial report for
\n2001 concluded that, similar to its miserable position in 2000,
\nthe company remained the worst performer among the three cement
\nunits in the Semen Gresik Group.<\/p>\n
Semen Gresik in Surabaya, East Java and Semen Tonasa in South
\nSulawesi, are the other two units.<\/p>\n
Semen Padang is even on the verge of defaulting on Rp 244
\nbillion in short-term liabilities due in August and another Rp
\n383 billion later this year.<\/p>\n
The company did make a turnaround last year with a net profit
\nof Rp 34 billion, against a loss of Rp 46 billion in 2000. But
\nthis earning was much lower than the Rp 43 billion profit gained
\nby Semen Tonasa, which has a smaller production capacity.<\/p>\n
Moreover, Semen Padang's profit last year was attributed
\nlargely to the sharp decline in its foreign exchange losses to Rp
\n51 billion from Rp 166 billion in 2000.<\/p>\n
Semen Padang's gross profit margin (earnings before interest)
\nwas only 13.9 percent, as against Semen Gresik's 26.3 percent and
\nSemen Tonasa's 16 percent, its return on assets was only 1.8
\npercent, compared to Semen Gresik's 4.7 percent and Semen
\nTonasa's 3.3 percent.<\/p>\n
Worse still, its return on equity was a mere 4.5 percent, as
\nagainst Semen Gresik's 10.2 percent and Semen Tonasa's 6.4
\npercent. Its liquidity position was also dangerously low at 0.7,
\ncompared to Semen Gresik's 1.4 and Semen Tonasa's 1.2.<\/p>\n
Still more worrisome, Semen Padang's net debt\/equity ratio was
\n104 percent, compared to Semen Gresik's 33 percent and Semen
\nTonasa's 58 percent.<\/p>\n
So strapped is Semen Padang for cash and so high is its risk
\nfactor that most major banks seem to have shunned the company,
\nforcing it to borrow in February Rp 200 billion through the
\nissuance of six-month notes to the state-owned Jamsostek labor
\ninsurance company at an annual interest of 21.75 percent.<\/p>\n
Several analysts wondered why Jamsostek still took such a
\ngreat risk by buying Semen Padang's debt instrument while its
\nmanagement was revolting against the company's shareholders.<\/p>\n
They estimated that Semen Padang would have to quadruple its
\nsales revenues to about Rp 5 trillion -- something that is surely
\nimpossible to achieve -- to be able to pay the Rp 627 billion in
\ndebts maturing this year.<\/p>\n
The company's production costs increased steeply even though
\nmost of its mineral inputs and the coal to fire its kilns are
\nsourced nearby. This only validated the allegations of many, that
\nthere have been some questionable deals done by Semen Padang with
\npoliticians, officials and crony businesspeople in West Sumatra,
\nwho are cosponsors of the spin-off campaign.<\/p>\n
But despite its cash flow problems, Semen Padang has spent a
\ngreat deal on the spin-off campaign from Semen Gresik.<\/p>\n
The company even deducted 10 percent of the annual bonus of
\nits employees to raise more funds for the campaign. The Semen
\nPadang trade union claims that the deduction was made with the
\nconsent of the employees themselves, but many workers have
\nquietly complained about the arbitrary cut.<\/p>\n
While squeezing its own employees, Semen Padang recently gave
\naway Rp 270 million in cash "gifts" to many provincial
\nlegislators, according to local legislator Moh. Zen Gomo, who
\nclaims to be the only one of the 55 members of the province's
\nassembly that rejected the cash "gift".<\/p>\n
So desperate was the management to develop a favorable public
\nopinion environment for its spin-off campaign that it once
\nconsidered putting an equity stake in a local daily newspaper,
\nMimbar Minang.<\/p>",
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"sponsor": "Okusi Associates",
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