The government's Semen Gresik dilemma<\/p>\n
By Vincent Lingga<\/p>\n
JAKARTA (JP): The cash-starved government will raise almost Rp
\n5 trillion (US$520 million) if it exercises a put option to sell
\nits 51 percent stake in the Semen Gresik cement holding company
\nto Mexico's Cemex before Oct. 26.<\/p>\n
Since the price to be paid by Cemex will be almost twice as
\nhigh as the current Semen Gresik share quotation on the Jakarta
\nStock Exchange, and in view of the big hole in the state budget
\nthat has to be plugged, the option should be too good a deal to
\nlet pass.<\/p>\n
But what is supposed to be a landmark deal for its own assets
\nis now embroiled in a very complex imbroglio which, if not
\nresolved satisfactorily, could scare the hell out of foreign and
\ndomestic investors and heighten Indonesian sovereign risks.<\/p>\n
The government on Wednesday asked Cemex to extend the deadline
\nto provide it more time to solve the problems with Semen Padang
\nand Semen Tonasa.<\/p>\n
\"No, we have not yet responded to the request, but we are
\nseriously considering it,\" Cemex Indonesia's president Francisco
\nNoriega said on Thursday.<\/p>\n
The roots of the problem are the demands from the people in
\nWest Sumatra and South Sulawesi that the government spin off the
\nPadang and Tonasa plants from Semen Gresik.<\/p>\n
Former president Abdurrahman Wahid, apparently in a bid to
\nappease regional disillusionment, approved the demands in
\nFebruary 2000 without realizing the grave consequences of his
\ndecision on Semen Gresik as a publicly-listed company and on the
\ngovernment's credibility regarding the sanctity of contract.<\/p>\n
Spinning off the two cement units, which account for almost 60
\npercent of Semen Gresik's total production capacity of 18 million
\nmetric tons, will not only hurt the interests of the investing
\npublic and Cemex which own 23.46 percent and 25.53 percent of the
\ncompany, respectively.<\/p>\n
Such a drastic corporate measure is not within the
\ngovernment's jurisdiction, but rests with the minority
\nshareholders to decide. That is if the government does not want
\nto violate the securities market rules which it has pledged to
\nenforce to strengthen the capital market.<\/p>\n
Both the investing public, which bought Semen Gresik shares,
\nand Cemex, which acquired its holding through a competitive bid
\nin 1998, put their money in the government-controlled company
\nprimarily because of its major role (a 37 percent share) in the
\ncountry's total cement production capacity of 46 million tons.<\/p>\n
Obviously, if the two subsidiaries were spun off, Semen Gresik
\nwould become a much smaller company, with small market
\ncapitalization and small growth prospects.<\/p>\n
Such a faulty deal would also be a bad precedent for the
\ngovernment's privatization program, which is a core element of
\nits economic reform program.<\/p>\n
At first glance, the demands for the spin-off appear to be
\nbased on strong nationalistic sentiment against foreign
\ninvestors, which, in this case is Cemex, the world's third-
\nlargest cement group with more than 65 plants, which last year
\nproduced 80 million tons of cement, in more than 30 countries
\nthroughout Asia, Africa, Europe and North and South America.<\/p>\n
But the central issue actually boils down to what the local
\npeople see as unfair distribution of the pie.<\/p>\n
Like many other legal entanglements encountered by companies
\nin various provinces, the complication currently faced by Semen
\nGresik is one of the time bombs left behind by the authoritarian,
\ncentralized government under former president Soeharto.<\/p>\n
\"I had warned then finance minister Mar'ie Muhammad against
\nthe grave grievances that are now exploding, before he approved
\nthe acquisition of Semen Padang (in West Sumatra) and Semen
\nTonasa (in South Sulawesi) by Semen Gresik in 1995,\" asserted
\nBasril Djabar, chief editor of the Singgalang daily in Padang.<\/p>\n
All three cement companies were then wholly owned by the
\ngovernment.<\/p>\n
As no one dared to argue with Soeharto, the deal went ahead
\ndespite the deep dissatisfaction of the West Sumatra people,
\nadded Djabar, who claimed to be a member of the West Sumatra team
\nin charge of fighting for the local people's interests in Semen
\nPadang.<\/p>\n
The problem, according to Djabar, is that the local people had
\nbeen willing to cede their traditional property rights to 400
\nhectares of limestone quarries to Semen Padang out of their high
\nsense of solidarity to support national development.<\/p>\n
\"But when Semen Padang was acquired by Semen Gresik and later
\nprivatized, that was an entirely commercially-motivated deal,
\nwhich had by no means been in the minds of the Minangkabau people
\nwhen surrendering their land,\" he said.<\/p>\n
\"What further emboldened the anger of the local people was
\nthat the commercial transactions were then concluded without
\ntaking into consideration any sort of compensation for the local
\npeople. This severely bruised the dignity of the Minangkabau
\npeople,\" he added.<\/p>\n
Djabar hastily added that the demands do not in any way
\nrepresent negative sentiment toward Cemex, nor against other
\nforeign investors.<\/p>\n
The local administration and people have worked hard to make
\nWest Sumatra the most hospitable place for both foreign and
\ndomestic investors, Djabar said.<\/p>\n
\"Believe me, we have nothing against you. You are simply
\nunlucky to be caught in this burning controversy fueled by the
\narbitrary act on the part of the then Soeharto government,\" he
\ntold a meeting with Cemex Indonesia's president Francisco Noriega
\nand vice president Vicente Saiso.<\/p>\n
Djabar said the West Sumatra legislature had delivered a
\npetition to President Megawati Soekarnoputri early this month
\nagain demanding the government divest Semen Padang from Semen
\nGresik.<\/p>\n
\"The spin-off will return Semen Padang to a wholly government-
\nowned company, and only then can we sit down again to negotiate a
\nwin-win settlement,\" he said.<\/p>\n
The South Sulawesi people, however, seem to be more
\nstraightforward about their aims, implying that their demand for
\nthe spin-off could be compensated with an equity stake in Semen
\nGresik.<\/p>\n
\"My monitoring of the people's aspirations concludes that they
\nsee the price paid by Cemex for Semen Gresik shares as too
\ncheap,\" said Bunyamin, the Jakarta correspondent of the Makassar-
\nbased Fajar daily newspaper, at the same meeting.<\/p>\n
Noriega categorically denied that Cemex bought Semen Gresik at
\na fire-sale price, pointing out that it won the stake through a
\ncompetitive bid and paid $1.38 a share, a 127 percent premium
\nover Semen Gresik's share price on the Jakarta Stock Exchange.<\/p>\n
\"We were invited by the government to contribute to the
\ncountry's development and we joined Semen Gresik in good faith;
\nbelieving that with the broad and strong base of our skills and
\ntechnology, and our good track record in operating more than 60
\ncement plants around the world, we will be able to cultivate
\nSemen Gresik to become a world-class cement company,\" Noriega
\nsaid.<\/p>\n
He said sound business profit is surely the primary motive,
\nbut that this was a long-term objective because when Cemex bought
\ninto Semen Gresik, Indonesia was at the height of its political
\nand economic crisis, its cement industry suffering from a huge
\nexcess capacity due to the plunge in demand.<\/p>\n
\"In fact, based on Semen Gresik's share price now, we suffer,
\non paper, a loss of $80.2 million, meaning that the market value
\nof our stake is now 38 percent less than our initial investment
\nin 1998. But we had anticipated this because we invest with a
\nthe long-term perspective, as our records in many other countries
\nhave proven\", Noriega said.<\/p>\n
Cemex's Conditional Sale and Purchase Agreement with the
\ngovernment in 1998 requires the Mexican company to pay $1.72 per
\nshare, almost twice as high as Semen Gresik share quotation now,
\nif the government exercises its put option for its remaining 51
\npercent stake.<\/p>\n
Noriega added that Cemex also had been contributing greatly to
\nexpanding Semen Gresik's exports to new markets and even to
\ncountries where Cemex already has cement operations.<\/p>\n
\"Semen Gresik's exports increased 137 percent in 1999. Semen
\nPadang exports alone expanded by 145 percent, of which 66 percent
\nwere generated by Cemex's trading networks,\" he added.<\/p>\n
Given the desperate need for foreign investment and the fact
\nthat until now not a single cent of the Rp 6.5 trillion targeted
\nfrom the sale of state companies has been raised, the government
\nshould do its best to resolve the issue with the local people in
\nthe two provinces.<\/p>\n
Allowing the spin-off, even with adequate compensation for the
\ninvesting public and Cemex, which could reach hundreds of
\nmillions of dollars, would amount to acknowledgement that the
\ngovernment had sold a company with legal problems to the public
\nand foreign investors.<\/p>\n
This not only would sabotage the whole deal with Cemex, but
\nwould cast great doubt over the whole privatization program as
\nwell as the government's credibility regarding the contracts it
\nhas signed.<\/p>\n
Still more damaging, the government could land itself in a
\nmessy litigation case filed by the investing public.<\/p>\n
The writer is a senior editor of The Jakarta Post.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/the-governments-semen-gresik-dilemma-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }