The widely publicised decision by Cemex, to sell its 25 per cent stake in publicly listed PT Semen Gresik (SG), Indonesia’s largest cement company, to local business conglomerate Rajawali isa very bad advertisement for Indonesia’s investment climate - reports the Jakarta Post.
Questions should be asked about why Cemex, with cement operations in almost 50 countries around the world, decided to quit Indonesia when demand for building materials in the country is expected to skyrocket during the next few years as a result of the accelerated development of some US$100bn worth of basic infrastructure projects.
While an offer of a significant block of shares usually commands a premium price, Cemex will sell its SG shares at US$2.28 per share, or a discount of more than 28 per cent on its closing market price of the equivalent of US$3.20 last Wednesday, with a total transaction value of US$337m. This shows that Cemex did not attract many bidders for its SG holding, which by itself is strong evidence that SG has not performed up to its potential capacity of more than 17Mt of cement a year, spread out in Indonesia’s largest markets -- Java, Sumatra and Sulawesi islands.
The proposed deal also indicates just how tired Cemex is after almost eight years of frustrating investment operations in SG and how desperate Cemex is to get out and cut its losses.
The failure of the government, as SG’s majority shareholder, to control the "rebellious" management of Semen Padang in 2001-2003 and to respond firmly to a severely damaging forensic audit of SP in 2004-2005 devastated the reputation of SG, as a publicly traded company.
The government, as the 51 per cent owner of SG (the investing public holds a 23.47 percent stake), will most likely approve the Cemex-Rajawali provisional agreement because the government has insisted the Cemex stake be acquired by national interests.
The government forcefully argued that since the second and third largest cement groups in the country are now controlled by foreign companies, the country risked losing control of an industry that is vital to national development if the Cemex holding in SG was acquired by foreign investors.
But even though the Cemex stake will be acquired by a national company, the deal will by no means contribute anything to the national economy. Nor will it do any good for the cement industry. The transaction will instead cause capital flight out of the country because Cemex will immediately bring out the proceeds for reinvestment elsewhere in southeast Asia where it has cement operations.
It would be much more beneficial for the economy if the widely diversified Rajawali Group, which reportedly is sitting on some US$700m in cash proceeds from the sale of its stake in Excelcomindo cellular telecommunications operator to a Malaysian company, invested in building a new cement plant.
The US$337m Rajawali will pay Cemex is already sufficient to develop a 2Mta plant, which is badly needed to prevent domestic cement shortages, which are widely predicted to take place in 2007 or 2008 – concluded the Jakarta Post editorial.