Semen Gresik's predicament

The predicament of publicly-listed PT Semen Gresik, which is now in an arbitration process at the International Center for Settlement of Investment Disputes in Washington, took a sharp turn for the worse on Monday after its shares were suspended from trading on the Jakarta Stock Exchange (JSX).

The JSX management announced it had to suspend Semen Gresik shares for its failure to issue, for the second consecutive year, its audited consolidated financial report for 2002. It said it received a 2003 audited financial report from Semen Gresik on Monday but the consolidated statement, similar to its 2002 audited report, carries a disclaimer opinion from its independent auditor -- public accountants Haryanto Sahari & Rekan- PricewaterhouseCoopers.

Separately Satriyo, chief executive officer of the country's largest cement group, said even though the audit of Semen Gresik's Semen Tonasa subsidiary in South Sulawesi and Semen Gresik unit in East Java had been completed with unqualified opinions, a special (forensic) audit was still underway in its Semen Padang subsidiary in West Sumatra.

Semen Gresik's shareholders ordered an investigative forensic audit on Semen Padang because they had been left completely in the dark about the cement unit's performance over the previous two years until its "rebellious" board of directors was forcefully ousted from the factory's premises last September. They wanted the auditors to ascertain whether the rumors that Semen Padang had been "pillaged" by its old management were legitimate or entirely false.

Semen Gresik has indeed been mired in a legal mess since 2000, especially after Semen Padang started its campaign to spin itself off from the Semen Gresik group, which is currently 51 percent owned by the government, 25.50 percent by Mexico's Cemex cement company and 23.50 percent by more than 1,135 individual and institutional investors (investing public).

When the JSX share price index rose by almost 70 percent last year and the share prices of Heidelberger-controlled Indocement and Holcim-controlled Semen Cibinong increased by approximately 200 percent, the Semen Gresik share price inched up by a mere 3 percent due to its seemingly endless legal battle with Semen Padang and a constant stream of negative publicity stemming from the litigation.

The JSX move on Monday should be welcomed as the right measure to impose market discipline on Semen Gresik. In fact, Semen Gresik should have been suspended from trading as early as last year when the company, for the first time, could not submit an audited consolidated report to the JSX management due to Semen Padang's failure to complete its audit.

Since Semen Gresik shares continued to be trading until last week, while investors were kept completely in the dark about the real financial condition of the company, one may wonder how the Semen Gresik share price had been formed in the market in the absence of its audited consolidated reports for 2002 and 2003.

Even though Semen Gresik's failure to publish a clean consolidated statement was caused solely by the problems in Semen Padang, this unit plays a significant role within the cement group as it accounts for more than 32 percent of Semen Gresik's total capacity of 17.2 million metric tons.

Market discipline has to be maintained, otherwise investors will lose trust in the JSX. This suspension, therefore, should not be lifted until the forensic audit of Semen Padang is completed, and the status of more than Rp 550 billion (US$58 million) worth of Semen Padang's assets, which reportedly have yet to be verified by the auditors due to lack of supporting documents, has been cleared.

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