Semen Gresik's predicament

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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