Govt may buy back Cemex shares in Gresik

Govt may buy back Cemex shares in Gresik

Rendi A. Witular, The Jakarta Post, Jakarta

The government is giving consideration to selling its shares
in publicly listed cement maker PT Semen Gresik to the public or
to new potential investors to raise funds for the buyback of
shares of Mexican cement giant Cemex SA in the company, a
minister has said.

State Minister of State Enterprises Laksamana Sukardi said
that the option was part of government efforts to resolve its
protracted dispute with Cemex out of court.

The sale of shares to the public would be via a rights issue,
he said.

He explained that the option was also taken on the grounds
that the government did not have enough money to repurchase the
shares if Cemex remained firm on its decision to ask for its
money back.

The government still has a 51 percent shareholding in Semen
Gresik.

Last month, Cemex asked the International Center for the
Settlement of Investment Disputes (ICSID), an affiliate
organization of the Washington-based World Bank, to act as an
arbiter in its dispute with the government over its investment in
Semen Gresik, Indonesia's largest cement maker, with a
consolidated annual output of 14 million tons.

Cemex has asked the ICSID to rescind the 1998 purchase
agreement and has demanded the Indonesian government cover the
company's investment outlay and pay damages.

Laksamana said that the government was now in the process of
selecting lawyers to face Cemex at the ICSID.

"We are still selecting our lawyers for that, but on the other
hand, the government is still working to seek the best possible
solution to the case," he said.

The dispute between the government and Cemex centers on the
company's failure to acquire a controlling stake in Semen Gresik,
as stated in a 1998 agreement.

Cemex, the world's third-largest cement maker, reached an
agreement with the government in 1998 to buy a 25.5 percent stake
in Semen Gresik for US$290 million. But the September 1998 deal
also provided an option for Cemex to increase its stake to 51
percent by the end of 2001.

However, the government could not deliver on its side of the
deal due to strong protest from PT Semen Padang, the West
Sumatra-based unit of Semen Gresik, and local politicians, who
ostensibly claimed to be opposed to the idea of the company being
controlled by a foreign investor. Attempts to resolve this
problem have been unsuccessful, leaving Cemex's investment here
facing an uncertain future.

Elsewhere, local media have reported that the government is
now in negotiation with several potential investors from Japan
and South Korea to buy out Cemex shares in Semen Gresik as part
of the government's attempt to resolve the matter.

However, Laksamana declined to comment on the news.

He said simply that several investors were interested in the
country's cement industry but were reluctant to commit themselves
due to the unfavorable legislative climate and a lack of legal
certainty in the country.

"A lot of investors are interested, but legal uncertainty in
this country has dented their interest in proceeding. In
particular, the unresolved Cemex case further undermines foreign
investor confidence in the country," he said.