Semen Padang defaults on US$57m in debts

The Jakarta Post, Jakarta

PT Semen Padang, the rebellious subsidiary of state-owned PT Semen Gresik, is on the verge of bankruptcy as it is defaulting on about Rp 515 billion (US$57.2 million) in domestic and foreign debts amid its worsening financial performance.

State-owned Bank Mandiri refused to disburse Rp 500 billion in a five-year loan it committed in June to Semen Padang after the West Sumatra cement manufacturer failed to obtain approval from its shareholders, the publicly-traded Semen Gresik, for the debt.

Semen Padang, which has been campaigning for a total spin-off from its holding company since early 2000, is required to pay Rp 244 billion in six-month-term notes, including interest charges, to state-owned Jamsostek, the labor insurance company, on Thursday, and around Rp 270 billion to ABN Amro Bank due on Aug. 20.

Without approval from Semen Gresik, which owns 99.99 percent of Semen Padang, the latter company could not put up any collateral to secure its loan and Bank Mandiri could not extend such a medium-term loan without any securities.

However, Semen Padang said on Monday it might sue Bank Mandiri for backtracking on its credit commitment, claiming that it does not require shareholder approval for the borrowing.

Semen Gresik, however, insists that its incorporation statutes oblige Semen Padang to obtain shareholders approval for loans of more than one year, and the Semen Padang management did file a request to the Semen Gresik board of directors early last month for such an approval.

But Semen Gresik turned down the request, waiting for a new management to be installed at Semen Padang.

Semen Gresik has tried, without any success, since early this year to replace the Semen Padang management due to its dismal performance, gross inefficiency and preoccupation with its campaign to separate itself from its holding company.

The Semen Padang management told Semen Gresik that its decision to prepay the ABN Amro foreign-currency loans, which charges annual interest of 6.4 percent to 7.27 percent, was aimed at protecting the company from the risks of foreign-exchange fluctuations.

But some analysts said the move was actually another attempt by Semen Padang to further alienate itself from Semen Gresik which guaranteed the ABN Amro credit because the proposed loan from Bank Mandiri would cost 19 percent a year.

Semen Padang's 2001 annual report, which was audited by Hans Tuanakotta & Mustofa independent auditors, showed the company, with an annual capacity of 5.5 million metric tons, was the worst performer of Semen Gresik's three cement units.

Semen Gresik near Surabaya, with an annual capacity of 8.2 million tons, and Semen Tonasa in South Sulawesi, with 3.48 million tons, are the other two cement units.

Semen Padang's operational margin declined from 16 percent in 2000 to 13.86 percent in 2001 as its cost of goods sold rose 20 percent to Rp 992 billion from Rp 802 billion 2000.

Even though almost 80 percent of its sales were made in Sumatra and its sales volume was up only around 10 percent, the transportation component of its selling expenses increased 70 percent.

The company also scored the lowest in all other measures of financial ratios.

Semen Padang did net an income of Rp 34 billion in 2001, compared to a loss of Rp 46 billion in 2000, but that was attributed largely to the steep decrease in its foreign exchange losses from Rp 166 billion 2000 to Rp 51 billion in 2001.

Its efficiency did not make any improvement this year, as can be noted in its unaudited report for the first half which showed that its cost of goods sold were Rp 551.5 billion, larger than the budgeted amount of Rp 531.6 billion.

Still more worrisome, Semen Padang's net debt/equity ratio was 104 percent, compared to Semen Gresik's 33 percent and Semen Tonasa's 58 percent.

But despite its severe cash-flow problems, Semen Padang has spent a great deal for mobilizing support for the campaign for its spin off from Semen Gresik.

The company even deducted 10 percent of the annual bonus of its employees to raise more funds for the campaign. While squeezing its own employees, Semen Padang recently gave away Rp 270 million in cash gifts to the provincial legislature, according to local councillor Moh. Zen Gomo, who claims to be the only member of the province's assembly, among its 55 members, who rejected the cash gift.

Several analysts also questioned some of the expenses detailed in Semen Padang's 2001 report. It spent Rp 13 billion for research and development or more than 10 times as much as that spent by Semen Gresik with a much larger capacity.

On top of that, Semen Padang booked another Rp 9.6 billion in expenses for education, training and development, up from Rp 6.5 billion in 2000.

The company reported Rp 5.65 billion in expenses for guests and ceremonies and another Rp 13.8 billion in staff traveling expenses, while it still owed Rp 30.2 billion in back contributions to its employee pension fund.

In spite of this utterly poor performance, the Semen Padang directors have clung to their position, staunchly opposing Semen Gresik's request for their replacement through an extraordinary shareholders meeting.

The directors' rebellion compelled Semen Gresik in early June to ask for an injunction from the Padang District Court to force the Semen Padang management to convene an extraordinary shareholders meeting.

However, Roeslan Dahlan, chief of the court, turned down Semen Gresik's petition in mid-June, stating that there was no valid reason to replace the management before its tenure ends in 2005.

Analysts saw the court's decision as a blatant violation of the property right of Semen Padang shareholders -- Semen Gresik --, which is in turn 51 percent owned by the state, 23.46 percent by the investing public and 25.54 percent by Cemex Asia Holdings Ltd. of Mexico.