Vincent Lingga , JAKARTA Tue, 03/24/2009 10:00 AM Opinion
The failure of state-owned PT Semen Gresik (SG), the country’s largest cement maker, to control its “renegade” PT Semen Padang subsidiary should be blamed partly for the flight of almost US$340 million capital when Mexico’s Cemex cement group quit Indonesia in 2006.
Cemex, the world’s third largest cement group, was so fed up with years of political, legal and business harassment by Semen Padang that it finally decided in late 2006 to sell its 25 percent holding in SG for around $340 million to the Rajawali Group, a domestic conglomerate.
The publicly-listed SG, riding high on the back of a 42 percent increase in net profits and a cash balance of around $250 million last year, is again moving to take hundreds of millions dollars of much-needed capital out of the country.
SG Vice President Heru Adiningrat said last Tuesday that the company had hired Credit Suisse Group as an adviser for its plan to acquire a 40 percent stake in a cement company that operates in Malaysia, Vietnam or the Philippines in a bid to maintain its revenue growth amid the expected slump in cement demand due to the global economic crisis.
But given the global credit crunch, the thin margin generated by cement exports and Indonesia’s hunger for new foreign direct investment, this corporate move is misguided. Why a state company is initiating a move that will result in such a large amount of capital flight at a time when new foreign direct investment in Indonesia is getting harder to come by is mind-boggling.
It is hard to comprehend how by holding a 40 percent stake in a cement company that operates in one of the three target countries SG would be more profitable than if it invested in resource-based ventures in Indonesia, especially because the investment will partly be funded by costly borrowing from the capital market (bonds) or banks.
Yet what is even more questionable is how such an investment could contribute to SG’s synergy. After all, its brand-name is relatively unknown internationally, while the giant world-class cement groups have long operated in the three target countries.
Another big question is how SG’s 40 percent holding in a cement company would contribute to strengthening its competitiveness against its two strongest competitors in the domestic market: Heidelberger-controlled PT Indocement and Holcim-controlled PT Semen Cibinong.
The blunt fact is that although it already utilizes 98 percent of its designed production capacity of 18.5 million tons and controls 44 percent of the domestic market, SG is not the most efficient cement producer in the country.
Why doesn’t SG simply focus its resources on implementing its long-delayed $785 million plan to build two new cement plants with a combined capacity of 2.5 million tons in C. Java and S. Sulawesi?
These investment projects would be timely and quite promising because by the time the domestic economy returns to its usual robustness, expected in 2011, SG’s new units would be on stream to meet the increased demand for building materials.
SG’s plan to invest hundreds of millions of dollars in a cement company in another ASEAN country looks strange, because Indonesia, as Southeast Asia’s largest economy, will remain the region’s largest market for cement and its derivative products.
By initiating an investment overseas, a domestic company could create the impression that Indonesia, endowed with such a rich variety of natural resources and potential market of over 235 million people, no longer offers viable business opportunities.
This is irrespective of how cheap the prices of cement companies in Southeast Asia might be, as SG CEO Dwi Soetjipto touted last week.
Minister for State Companies Sofyan Djalil, who, with a 51 percent holding, is the government nominee shareholder at SG, as well as the investing public, which has a 25 percent stake, should oppose the overseas investment plan which the SG management will propose at a shareholders meeting scheduled this May.
