Michelin buys 10% GT

The Jakarta Post, Jakarta

In a bid to strengthen its production and distribution network in Indonesia, the world's largest tire producer, Michelin, has decided to buy a 10 percent stake in local tire maker and distributor PT Gajah Tunggal (GT).

In its report to the Jakarta Stock Exchange on Friday, GT said the French company had inked an agreement with it to produce and distribute tires locally, under Michelin brands, for passenger vehicles and light trucks.

"To strengthen the deal, Michelin has bought 10 percent of the company's shares," said GT in the statement.

The company, which has produced at least 95.8 million tires since 1993, refused to disclose the value of the deal, but according to analysts it may be worth around Rp 600 billion (US$67 million).

GT was founded by tycoon Sjamsul Nursalim, who now resides in Singapore.

The company is the largest integrated tire manufacturer in Southeast Asia, and ranks 23 among the world's top tire producers.

Under the agreement, GT will also produce BFGoodrich, a tire brand owned by Michelin. The tires will be allocated for the replacement market.

Michelin controls 19.2 percent of the world's tire market, with 52 percent of its sales driven by Europe, 35 percent by North America and 13 percent by Asia, South America, the Middle East and Africa.

The country's tire industry is facing surplus stock with installed capacity reaching 37 million tires per year and demand, 22 million per year.

Also, cheap tires from China have been flooding the local market, dealing a heavy blow to the industry here. The tires are reportedly smuggled into the country, or undervalued during the clearance process.