Mexican cement giant Cemex SA has turned down the government's proposal to buy the company's shares in state-owned cement maker PT Semen Gresik (SG), saying that most of the government's proposal goes against the existing deal made in 1998 between the two sides.
Although it is most likely now that Cemex will finally sell its shares to the Rajawali Group, the government still faces the threat of arbitration proceedings as the Mexican firm has not officially withdrawn its complaint.
In its reply to the government Tuesday, Cemex, through its subsidiary Cemex Asia Holdings Ltd, said the company was no longer required to sell its shares to the government, which it said had failed to exercise its purchase option by the set deadline or in accordance with the prescribed procedures.
"Cemex Asia is free to sell the shares that were subject to the government's right of first refusal to the proposed purchaser identified in our first refusal notice subject to the terms provided in the CSPA (conditional sale and purchase agreement)," said Cemex in its letter, which was signed by its executive Hector Medina and a copy of which has been obtained by The Jakarta Post.
The company argued that the government's intention of designating unspecified parties affiliated with the government to buy the shares was contrary to the CSPA, which only granted the right to acquire the shares to the government itself.
Cemex recently signed a deal with Rajawali to sell its 24.9 percent stake in Semen Gresik for US$337 million. But the transaction is subject to the approval of the government as the majority shareholder in the country's largest cement maker.
"There are now no longer any substantial legal obstacles preventing Rajawali from buying the Cemex stakes. The government should comply with the CSPA," Rajawali managing director Daryoto Setiawan said.
However, State Minister for State Enterprises Sugiharto said the government would explore other options for making Cemex accept the proposal, especially as regards who was eligible to exercise the government's right under Indonesian corporation law.
"We are still discussing with Cemex about who is eligible to exercise our rights, the transaction period and our demand that Cemex withdraws the ongoing arbitration process," said Sugiharto, without elaborating further.
He made his remarks after a special meeting with Vice President Jusuf Kalla, Coordinating Minister for the Economy Boediono, Finance Minister Sri Mulyani and JPMorgan Indonesia president director Gita Wirjawan -- an advisor to Cemex.
The Cemex letter, however, did not say anything about ending the arbitration process.
Sugiharto also warned that the government would refuse to give its approval to the transaction with Rajawali should Cemex turn down its request to end the ongoing legal dispute before the International Center for the Settlement of Investment Disputes in Washington D.C.
Sugiharto claimed the government and Cemex would meet soon to try to settle the problem in an amicable way.
Cemex brought the government of Indonesia to arbitration after it failed to abide by a 1998 investment deal that would allow Cemex to gradually become the majority shareholder of Semen Gresik.
The management of Semen Padang and some politicians in Jakarta and West Sumatra adamantly opposed the deal in 2002. They eventually were supported by both the local and central governments.
An official at the State Ministry for State Enterprises said he believed that the failure to resolve the Cemex case was partly the result of Sugiharto's failure to hire lawyers familiar with international deals.
"It is a blunder made by the minister. The content of the reply from Cemex was humiliating. It reflects a lack of legal understanding about international deals (on the part of the government)," said the official, saying that the case could damage Sugiharto's standing as a minister.
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