Semen Gresik to issue Rp 1.2 trillion in bonds

JAKARTA (JP): Publicly listed state cement producer PT Semen Gresik said it would issue up to Rp 1.2 trillion (about US$125 million) in domestic bonds in the first semester of this year to raise funds to repay its debts.

During the company's extraordinary shareholders meeting on Friday, the plan to issue the domestic bonds was approved, as was the replacement of one of the company's commissioners.

Semen Gresik president Urip Timuryono said his company planned to use the funds from the bonds to repay part of its medium-term notes I and II, which have a price of $162.21 million and Rp 214.6 billion, respectively.

Payment for note I falls due in January next year, while note II will mature in April of the same year, he said.

"Semen Gresik is acting on prudential principles in this refinancing scheme, and the company is confident it can meet its obligations to creditors," Urip said during a media conference following the shareholders meeting.

He said the coupon rates on the bonds had yet to be decided, but added they would reflect the bonds' rating and market conditions.

State rating agency PT Pefindo, he said, was in the process of rating Semen Gresik's bonds.

"We prefer to have fixed rates instead of floating ones," Urip added.

Assuming an exchange rate of Rp 9,500 to the U.S. dollar, payment for notes I and II will total Rp 1.7 trillion, he said.

Because the bond issue will only raise Rp 1.2 trillion, he said Semen Gresik would repay the remaining Rp 500 billion of the notes from internal sources.

A press statement from the company said bonds were chosen as the method to finance the notes because they were less costly than other sources of financing, such as loans.

Semen Gresik issued medium-term notes I and II in 1997 to help finance the construction of its Tuban II cement plant.

Initially, the company had its U.S. dollar-denominated note hedged, but financing problems in 1998 made it unable to extend the hedging.

Urip dismissed worries about repaying unhedged U.S. dollar- denominated loans with the local currency.

"We have factored in the risk of currency fluctuations, which is why we are assuming a 9,500 exchange rate to the dollar," he said.

Asked whether the local market could absorb Rp 1.2 trillion worth of bonds, he said underwriters had made a "full commitment" to the bond issue, meaning the underwriters would buy up all the bonds not taken by investors.

The underwriters include PT Danareksa Securities, PT Bahana Securities and PT Citicorp Securities Indonesia.

Urip also gave assurances that the government's plan to spin off Semen Gresik's subsidiaries PT Semen Padang and PT Semen Tonasa would have no impact on the bonds issue.

The bonds concern only Semen Gresik and have nothing to do with the consolidated operations of its subsidiaries, he said.

The government plans to spin off the two subsidiaries in response to protests from the local communities near Semen Padang in West Sumatra and Semen Tonasa in South Sulawesi.

Locals demanded the spin-off because of worries over the foreign ownership in Semen Gresik.

The Semen Gresik Group, which includes Semen Padang and Semen Tonasa, is 25 percent owned by the Mexican-based PT Cemex Indonesia, which has long expressed its desire to increase its stake in the company.

"It will make no difference whether the spin-off occurs or not, we will go ahead anyway and issue the bonds," Urip said.

Cemex president Fransisco Noriega said no progress had been made in the plan to spin off the companies since the government unveiled the scheme last year, without revealing how it planned to achieve the spin-off.

"We are still waiting for their proposal," he said.

The government owns a 51 percent stake in Semen Gresik, Cemex has a 25.53 percent stake and the public owns the remaining 23.46 percent. (bkm)