Minister says Cemex agrees to SG spin-off proposal

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.