Cemex eyes Indonesia for Southeast Asia headquarters

Cemex eyes Indonesia for Southeast Asia headquarters

By Berni K. Moestafa

JAKARTA (JP): The global cement industry, like many others, is
consolidating and evolving into a tight industry with a few key
players vying to control the world market.

This trend was picked up by the Mexican-based cement producer
Cemex in the mid-1980s, when the company realized the need to
compete in the international market. As a result it adopted a new
strategy to expand geographically into emerging markets with high
growth potentials.

A rapid expansion followed and today the company boasts of
itself as the third world's largest cement producer, with a
production capacity of some 65 million metric tons of cement per
year and 56 cement production facilities across 15 countries.

While Cemex's 1997 investment in the Philippines was a large
part of the company's expansion program, Cemex's stake in
Indonesia was even more than that.

Cemex focused on Indonesia because of the country's proximity
to other Asian markets, its own domestic market potentials and
the availability of educated human resources.

"We're not thinking of a simple cement factory in Indonesia.
Since day one, what we've been thinking is to have the
headquarters of Southeast Asia here in Jakarta," said Cemex
president for Indonesia Fransisco Noriega.

In 1997 Cemex then entered Indonesia by acquiring a stake in
the state owned Semen Gresik Group (SGG).

Grouped under SGG are PT Semen Gresik, PT Semen Tonasa and PT
Semen Padang.

Cemex currently owns a 25 percent stake at Semen Gresik, which
is the parent company of Semen Tonasa and Semen Padang. The
government is the majority shareholder at Gresik with 51 percent
while the public owns the remaining 24 percent.

"We want to make out of Gresik a big company that will become
the umbrella company of our investments in Asia," Noriega said.

According to him, the move would turn Semen Gresik into a
global player responsible for Cemex's investment in the Southeast
Asian region.

He said that throughout the region, Cemex planned to invest in
such things as cement terminals and grinding facilities.

The company is currently building a cement grinding facility
in Bangladesh, with the Semen Gresik Group supplying the clinker
-- the raw material to be pulverized into cement.

Through Semen Padang, the group will also provide the grinder
and steel structure of the Bangladesh facility.

But Noriega added that Cemex investment in Indonesia was not
merely based on the country's export potentials.

He said that investment in the cement industry was aimed at
meeting a country's domestic cement demand, while exporting to
cover any deficits in other markets.

Along with PT Indocement and PT Semen Cibinong, Semen Gresik
dominates the local market with a 90 percent share, according to
news agency Reuters.

But Noriega acknowledged that Indonesia's current production
capacity exceeded domestic demand.

He said that Indonesia's installed production capacity reached
48 million metric tons of cement per year as against an estimated
domestic consumption of 21 million tons this year.

"Before the crisis, we all thought that there would be a
shortage in supply, but that happened in all countries in this
region," he explained. He estimated that by 2007 cement demand
could match Indonesia's installed production capacity.

According to him, Indonesia's cement demand was already
growing by around 15 percent a year on the back of a recovering
construction industry.

However, as Indonesia shows the right potentials to become
Cemex's headquarters in Southeast Asia, the company is still far
from realizing the plan.

Transforming Semen Gresik into a global player depends largely
on whether the government gives its approval for the Mexican
company to purchase a majority stake in Semen Gresik.

Although the government first agreed on the acquisition,
protests by the people of Padang in West Sumatra, who rejected
foreign control of Semen Padang, delayed the plan.

The people have argued that Semen Padang's factory was built
on their heritage land and demanded that the company remain under
their control.

The government then accepted the local community's suggestion
to spin off Semen Padang from Semen Gresik and to pave the way
for Cemex to become the majority shareholder in Gresik.

Noriega said that although the plan had the support of
President Abdurrahman Wahid and his economic ministers, the
government had yet to follow up on the spin off plan.

He described the current situation as contradictory to the
government's desperate efforts to attract foreign investors.

"The message is confusing, I see no major problem to explain
why this (the spin off) is not happening," he said.

He said that while most foreign investors shy away from
Indonesia, Cemex was eager to invest and expand here.

"Are we willing to invest more in Indonesia? Yes! When do we
want to do it? Now! Are we committed to this country? Yes!"
Noriega said.

Cemex, however, is not the only cement producer interested in
Indonesia despite the country's infamous volatile investment
climate.

The world's largest cement producer, Switzerland's Holderbank,
plans to raise its stake to a majority in the publicly listed PT
Semen Cibinong.

While Heidelberger, ranking fifth in the global cement
industry, is aiming for a stake in the publicly listed PT
Indocement Tunggal Prakarsa.

According to Gresik corporate secretary Amat Oemar Asnar as
quoted by Reuters, cement firms have a chance to enter the market
cheaply.

"While a new plant would cost around $150 per ton of cement,
most Indonesian cement firms are valued now at less than $100 per
ton," he said.

Amat said Cemex paid only $70 per ton when it bought a 20
percent stake in Gresik in 1998.

Gonzalo Galindo, vice president for planning at Cemex
Philippines said that the opening of the world's economies was
pushing cement firms to expand and consolidate their operations
world wide.

He estimated that, except for the Chinese market, the
consolidation has resulted in ten cement companies controlling
about 44 percent of today's world market.

However, he said, to control the market, Cemex always aimed at
acquiring a majority stake when investing in cement companies.

"A majority stake is the only way for us to implement Cemex's
overall strategy," Galindo told visiting Indonesian journalists
in Manila.

Calling it the Post Merger Integration process, he said,
cement companies would assimilate Cemex's best working practices,
while at the same time share their expertise with Cemex.

But at present, he said, Indonesia and Chile are the only two
countries where Cemex owns a minority stake.

Noriega said that with only a minority stake at Semen Gresik,
the company had no control over the management of Semen Gresik,
let alone being able to introduce Cemex's best working practices.

He said that although the presence of Cemex here showed its
optimism on becoming a majority shareholder at Gresik, there was
still a timeframe.

Cemex, he said, has shown patience but would have to pull out
of Indonesia if no progress was made on the government's side.

"It takes two sides, the buyer and the seller, so we're still
waiting," he said.