Govt may offer Cemex more SG shares: Minister

Urip Hudiono, The Jakarta Post/Jakarta

With the option of buying back Cemex SA's shares in state-owned cement producer Semen Gresik (SG) no longer viable, the government will likely offer the Mexican cement giant a majority stake in SG to amicably settle the protracted investment dispute between them.

"Cemex has said that it will not sell its shares, so any notion of the government buying them back is now out of the question," Coordinating Minister for Economy Aburizal Bakrie said on Monday. "The government also has no money."

Aburizal, who insisted that the cash-strapped government would refuse to pay any compensation claims as part of the dispute's out-of-court settlement, said that one of the most likely options was therefore to let Cemex buy more shares in SG.

"Cemex could buy up to 49 percent or 51 percent of SG's shares," he said. "And we are ready to sell the shares, as long as they are sold at a good price, or at least at a better price than now."

Cemex currently has a 25.53 percent stake in the publicly listed SG, while the government has a 51.01 percent stake. The remaining 23.46 percent is held by the investing public.

Aburizal, however, said that the government would still carefully consider the option to prevent the country' cement industry from being taken over or dominated by foreign firms.

"But I don't think that it will be a problem as SG's production capacity is only 17 percent of the country's total," he said, comparing it with Semen Cibinong, which is 76 percent owned by Swiss cement firm Holcim, and whose production capacity accounts for 20 percent of the national total.

But with German cement firm Heidelberg already the major shareholder in Indocement and French cement company Lafarage the main shareholder in Semen Andalas, such concerns could come true, thus raising the sort of nationalistic sentiment that could snag the latest out-of-court settlement option.

The viability of the option, however, remains in question as the long-standing dispute between the government and Cemex has been the result of the latter's failure to execute such an option.

Under the deal made with the government in 1998, when Cemex first bought SG's shares, Cemex was given the option of increasing its stake so as to become the majority shareholder after a number of years. However, Cemex was unable to realize the option given strong oppositions from the management of the West Sumatra- based Semen Padang -- an SG subsidiary -- and local politicians who said they feared that foreigners would come to dominate the nation's cement industry.

Cemex, therefore, decided to take the case to the International Center for the Settlement of Investment Disputes (ICSID), demanding that the government pay damages.

The government had previously offered to buy back Cemex shares in SG to settle the dispute, but the plan was never realized. A source at the Office of the State Minister for State Enterprises said Cemex had asked the government to buy back its shares at a price of at least Rp 14,500 per share, or about Rp 4.5 trillion ($500 million) for the full stake.

With the government's plans to promote infrastructural development next year, the country's cement industry looks like becoming a lucrative prospect, with demand expected to grow by up to 10 percent, industry analysts say.