Semen Gresik sale to continue as planned

Semen Gresik sale to continue as planned

JAKARTA (JP): The bidding process for state-owned cement maker
PT Semen Gresik will continue as scheduled although its
subsidiary PT Semen Padang may have to be excluded from the sale
in the wake of last week's protest by West Sumatran community
leaders, State Minister of the Empowerment of State Enterprises
Tanri Abeng said yesterday.

"The deadline for the second bidding stage remains August 19,"
he told reporters yesterday following a seminar on privatization.

He explained that after completing the bidding process, the
government would sit together with the winning investor to
formulate a new "strategy" that would be acceptable both to the
investor and the government.

Such a compromise is also expected to accommodate the
aspirations of the Sumatran people who strongly objected to the
privatization, which will allow foreigners to become a majority
shareholder of Semen Padang, a wholly owned subsidiary of Semen
Gresik, he said.

"I admit that this will not be easy," Tanri said, but added
that the modification would not confuse the foreign investor
because it would be based on good intentions.

"The modification can be communicated as long as it is done
with good intentions. We will not cheat or make profit
unilaterally. Good faith in business is very important," he said.

He added that the foreign investor would have a long-term
business plan in Indonesia.

"I don't think they would mind losing money in the first two
to three years," he said.

Germany's Heilderberger Zement AG, Switzerland's Holderbank,
and France's Laferge Asia Pacific are competing in the second
bidding stage to top the first price offer made last month by
Mexico's Cemex SA de CV of US$287 million for a 35 percent stake
in Semen Gresik.

The latter, however, has the right to top any new bid within
five days after the second bidding stage is completed.

Under the initial plan, the winner would be allowed to
purchase another 16 percent stake in the publicly listed Semen
Gresik through a tender offer mechanism to become the majority
shareholder.

Last week West Sumatran community leaders, who culturally lay
claim to the land on which Semen Padang's facilities are located,
demonstrated against the sale plans.

"The protest will not delay the privatization process although
we'll have to make a modification that is acceptable to the
public," Tanri said.

He declined to disclose the new alternatives but admitted the
modification might include restructuring the ownership of Semen
Padang to prevent foreign control of the company or releasing it
from Semen Gresik, and retaining the government's majority
ownership of the company.

Credibility

Pande Raja Silalahi, an economist at the Center for Strategic
and International Studies, said that if Tanri failed to appease
the public uproar against the privatization plan, investors would
question the government's credibility.

"I think Tanri must make a courtesy call on the senior leaders
of the West Sumatran people and let one of them become an adviser
to Semen Gresik or allocate part of the sale proceeds for the
community ," he said.

The government plans to divest part of its shares in 12 state-
owned companies this fiscal year to raise $1.5 billion to help
finance the state budget which is heavily burdened by the huge
subsidy commitments to help the poor in surviving the current
crisis.

Semen Gresik is the first to be privatized.

Tanri, however, stressed yesterday that the government would
limit the number of companies being sold off this fiscal year
because of the state of the capital market.

He said shares of state companies which are listed on the
stock exchanges are mostly undervalued at present and their value
should therefore be allowed to increase before the firms are sold
off.

He cited that publicly listed international telecommunications
provider PT Indosat's current market value of less than $1
billion would have to be boosted to around $2.5 billion before
the government sold 20 percent to 30 percent of its shares.

"We can do this by restructuring Indosat in cooperation with
the telecommunications regulator so that the company can have new
incentives," he said.

"Through this kind of value creation strategy, we can get cash
flow without selling more state assets," he said.

Indosat is one of the 12 state companies being prepared for
further privatization.

Tanri also said that although the government had received some
$14 billion in international aid to close its wide budget
deficit, the $1.5 billion privatization proceeds were still
needed.

He also said that the public should not be upset by the
privatization because $1.5 billion represented less than 1
percent of the total assets of the country's 159 state-owned
companies.

"It's peanuts," he said, adding that the privatization would
help the crisis-hit country to restore the badly needed investor
confidence.

"Foreign aid is politically driven, but inflows of
privatization money are an indication that investor confidence
has started to return," he said. (rei)