Minister says Cemex agrees to SG spin-off proposal

Dadan Wijaksana, The Jakarta Post, Jakarta

Confusion surrounding the proposed split of cement makers PT Semen Padang and PT Semen Tonasa from parent company PT Semen Gresik continued following a statement that a key minority shareholder had approved the plan.

Coordinating Minister for People's Welfare Yusuf Kalla said on Tuesday that Cemex SA de CV had given its approval.

"We've had informal talks with Noriega (Cemex's president in Indonesia), and there is basically no problems. The response was okay, they agreed to the spin-off plan," Yusuf was quoted by detik.com as saying.

Yusuf has been appointed as the mediator to settle a long- standing quarrel between the central government and the local administrations of West Sumatra and South Sulawesi who have demanded the separation of Semen Padang and Semen Tonasa from the parent company.

Earlier, State Minister of State Enterprises Laksamana Sukardi said he had sent a letter to the governor of West Sumatra, saying that the government had basically agreed to the demand, but said that it must be carried out legally.

Semen Gresik (SG) owns 99 percent of both the subsidiary companies and is currently the country's largest cement provider with a total capacity of around 17.25 million metric tons. SG is 51 percent owned by the government, 23.46 percent by the public and 25.53 percent by Cemex.

According to existing laws, any major corporate action to be taken by the publicly-listed SG should get the approval of Cemex as one of the company's minority shareholders.

Meanwhile, a source at Cemex said the company had never been given any formal notice about the government's official stance on the issue.

"We've never had official communication with the government, so we really cannot tell what our official position regarding the matter is," an official from Cemex, who asked for anonymity, told The Jakarta Post, adding that the company had not even received a copy of the letter containing the government's approval for the move.

When asked about Yusuf's remarks, the source replied that any major corporate action should be taken based on a "formal basis", not an informal one.

There are plans now to hold an extraordinary shareholders meeting in the second week of next month to decide on the split.

Yusuf said that even if everything went well, the process would take a year to complete.

The conflicting statements provide the latest drama clouding SG, which has long been surrounded by controversy.

Cemex became SG shareholders in October 1998, when it bought a 25 percent stake from the government under a privatization program. The Mexican company also has the right to buy another 51 percent stake in the company under a put option agreement.

However, until the deal expired in October 2001, Cemex could not execute the rights due to fierce objections from people in Padang (in West Sumatra) and South Sulawesi, the home province of Semen Tonasa.

Since then, calls for a spin-off have been increasing.

The consequence, however, could prove costly.

Not only will it prove detrimental to privatization plans and damage already dwindling investor confidence, the government will also have to set aside hefty compensation to SG's minority shareholders if the split is carried out. These investors had bought the SG shares by taking into account Semen Padang and Semen Tonasa assets.

If a split is to take place, the government will have to cover the price gap between those paid by the public and Cemex, which were based on assumptions that SG's output was 17.25 million metric tons, and the ones valued after the spin-off, which makes the production capacity much lower than previously.

Semen Padang and Semen Tonasa have a combined production capacity of around 9 million metric tons.