Govt to reneg on Cemex deal again

Govt to reneg on Cemex deal again

Berni K. Moestafa, The Jakarta Post, Jakarta

The government decided on Friday to sell a 51 percent stake in
state-owned cement producer PT Semen Gresik to Mexico's Cemex SA
de CV and use part of the proceeds to repurchase majority shares
in two subsidiaries, striking a path between appeasing those
opposed to foreign control, while hopefully upholding legal
certainties before foreign investors.

Highlighting the cost of this compromise, the plan may cut the
net proceeds from a deal with Cemex by a hefty US$320 million.

"We expect a net proceed of $200 million," said State Minister
for State Enterprises, Laksamana Sukardi.

Semen Gresik's original deal was worth $520 million.

Still, this assumes that the government can convince Cemex as
well as the people involved in the subsidiaries in question, PT
Semen Padang and PT Semen Tonasa, to approve the plan.

A deal to sell Gresik to Cemex has been floundering apparently
due to nationalistic opposition of foreign control in Gresik's
two units.

Laksamana said the government would sell Gresik but use the
proceeds to buy back its two units in a spin off from Gresik.

"To accommodate everybody, the government will buy back its
majority shares in PT Semen Padang and PT Semen Tonasa from Semen
Gresik," Laksamana said.

The complex deal would involve the government first selling
its remaining 51 percent stake in Semen Gresik to Cemex, which
already owns a 25 percent stake and bring it up to 76 percent,
with the remaining 23 percent owned by individual investors.

Using the proceeds from the sale, the government would then
buy back a majority stake of 51 percent in the two subsidiaries.

Laksamana said the deal would allow Padang and Tonasa to
remain under national control, a key demand from people in the
provinces of West Sumatra and South Sulawesi, who have a stake in
keeping it under national control. Those people include workers
and local leaders.

If Laksamana's plan was to go into effect Cemex would still
control a 49 percent stake in each of the two companies.

From this deal the $200 million profit would be applied toward
this year's privatization target of Rp 6.5 trillion (about $622
million). Thus far, the government has nothing to show for its
privatization plan as none of the state-owned companies have been
sold.

Proceeds from the privatization will help cover the state
budget deficit of an estimated Rp 50 trillion this year.

Laksamana further cautioned that the new plan was subject to
approval from Cemex and Gresik's public shareholders.

He said a team would immediately start negotiating with Cemex.

"I am sure Cemex is still interested...but we need to
renegotiate the terms of the contract," he said.

Cemex first entered Gresik in 1998 with an 11 percent stake,
which it plans to increase through a put option deal.

Under this put option deal, the government owns the right to
sell a 51 percent stake in Semen Gresik for $520 million, which
Cemex must accept.

The deal should have expired in October, but its deadline was
postponed to Dec. 14, 2001 upon the government's request, bowing
to opposition pressure at Padang and Tonasa.

At Semen Padang, where the opposition is strongest, locals
argued that the company was a source of provincial pride, and
should remain under national control.

Semen Gresik has become a showcase for foreign investors who
complain of the difficulties in obtaining Indonesian assets.

Political instability, inconsistent law enforcement and a weak
legal system, all of which are plagued by corruption are
dampening investor interest in the country.