Govt could lose $520m in Gresik spin-off: Cemex

JAKARTA (JP): The government risks loosing US$520 million in potential income from the divestment of its remaining shares in PT Semen Gresik, if it goes ahead with a plan to spin off Semen Gresik's two subsidiaries, Mexican-based cement producer PT Cemex Indonesia said on Thursday.

Cemex Indonesia's president Francisco Noriega said that under a put-option agreement with the Indonesian government, Cemex had been given the rights to buy the government's remaining 51 percent stake in Semen Gresik at $520 million.

"If the government says they want to sell, we (Cemex) end up paying four times what the company (Semen Gresik)'s value is today," he told reporters at his office.

The put-option agreement values Semen Gresik's shares at $1.65 a share, compared to the shares' current market value of Rp 4,500 (about 45 U.S cents).

But, he added his company would not buy Semen Gresik's shares at the agreed price without its two units, PT Semen Padang and PT Semen Tonasa, being included.

"If you separate the companies, there is no put-option because you bought the three companies together," he told reporters at his office.

In 1995, the government merged the three companies to prevent private cement producers from dominating the local market.

Cemex, the world's third largest cement producer, entered Semen Gresik in 1998, by buying the government's 14 percent stake in the company for $114 million.

The company bought another 11 percent through the market to raise its stake to 25 percent.

Cemex later secured a put-option agreement to allow it to become a majority shareholder in Semen Gresik. Under this agreement, the Mexican cement company was given the right to buy the government's remaining stake at approved prices.

But, the government backtracked on the deal, following protests from the people of Padang, who insisted that Semen Padang be free of foreign control.

Noriega said that the put-option agreement would expire in October this year.

The chances are slim that the government will be able to cancel the spin-off plan, given the strong pressure from the local residents to separate both Semen Padang and Semen Tonasa from Semen Gresik.

But heeding their demands means giving up $520 million in fresh funds badly needed to stitch up the government's unraveling state budget.

The government has said that it will decide whether to go ahead with the spin off plan by the end of April.

According to Noriega the deadline is too optimistic, saying it will require more time to hammer out a spin-off deal.

He said that to date, the government had not even made a formal offer as to how it intended to proceed with the spin-off plan.

Finance minister Prijadi Praptosuhardjo has said that the government would likely compensate Cemex with government shares in Semen Gresik.

He dismissed a cash compensation scheme for Cemex, given that the government was already running a tight budget.

Noriega said that prior to a spin-off decision, the government must consult with all Semen Gresik's shareholders.

"We're open to discuss all the alternatives the government offers us," Noriega continued.

Cemex, he said, had outlined several compensation scenarios, but he declined to discuss them as they were confidential.

Noriega has repeatedly declined to comment on whether Semen Gresik would still be attractive without Semen Padang and Semen Tonasa.

The two companies make up over 50 percent of Semen Gresik's annual production capacity of 17.5 million tons.

However, he did not rule out the possibility of Cemex retreating from the country if no compromise could be reached.

According to him, speculation about the spin-off plan was already hurting Semen Gresik's shares, which have lost 30 percent in value this year alone.

Semen Gresik is 51 percent owned by the government, 25.53 percent by Cemex, and 23.46 percent by the investing public.

In 1999, Cemex bought a nine percent stake in Semen Gresik from the public to give it 25.53 percent control over the company. (bkm)