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Indonesia blurs Cemex takeover bid

Ramli
Rizal Ramli, left, shown with President Wahid, warned the budget deficit could grow if privatization stalls  

In this story:

Budget deficit could grow if privatization stalls

Regional autonomy threatens the deal

Spinoffs might lead to compensation




JAKARTA, Indonesia -- Indonesia's efforts to attract much-needed investment are being jeopardised by a growing row involving the nation's biggest cement producer.

State-run PT Semen Gresik wants to sell a majority stake to Mexican cement giant Cemex, which already owns 25.5 percent of the company.

But Indonesian regional authorities and residents averse to foreign ownership have lobbied to spin off two subsidiaries from Semen Gresik.

This hampers the proposed Cemex deal and casts doubt over other planned privatizations, analysts said.

Jakarta aims to raise $613 million (6.5 trillion rupiah) by privatizing state-owned firms this year, part of a program seen as vital to the country's economic future..

Budget deficit could grow if privatization stalls

Indonesia's chief economics minister Rizal Ramli earlier this month warned the country's budget deficit could grow to more than five percent of gross domestic product unless the government encouraged privatization and increased tax revenues.

The latest budget put the deficit at 3.7 percent of GDP. The row over Semen Gresik comes as a team from the International Monetary Fund is in Indonesia to discuss its economic reform program and a $400 million loan that has been held up.

In 1998, when Gresik went on the block as part of an IMF-sanctioned privatization program, Cemex, the world's second largest cement manufacturer, jumped at the opportunity.

Hoping to gain a foothold in Indonesia, Cemex beat other foreign competitors for the right to buy a stake in Gresik by bidding $1.38 per share -- double the Indonesian firm's share price at the time and well above market expectations.

Gresik closed at 4,375 rupiah ($0.41) on Wednesday.

Regional autonomy threatens the deal

But Cemex's plans to lift its stake to a majority have been hit by efforts from Gresik subsidiaries Semen Padang and Semen Tonasa, emboldened by a new regional autonomy law, to break away.

The regional autonomy law took effect in January and aims to give local authorities more control over their affairs as part of efforts to keep the world's largest archipelago together.

Semen Padang and Semen Tonasa account for nearly 60 percent of Semen Gresik's total production. Without them, Gresik would shrink to be the country's third largest cement maker.

"If you spin off the two subsidiaries, Semen Gresik becomes a smaller company and a smaller market capitalization is less attractive to foreign investors," a cement analyst at a foreign brokerage in Jakarta said.

The government's stance on the spinoffs is not clear.

Spinoffs might lead to compensation

Analysts said the spinoffs would see the government lose out on some $520 million based on a put option to sell its Gresik shares to Cemex at $1.66 each.

It is effectively sacrificing the cash to please local governments and residents of West Sumatra provincial capital Padang and South Sulawesi's Tonasa, who oppose the privatization and want more control over the companies in their areas.

Analysts agreed spinning off the two would be a burden for the government, grappling to prevent its budget deficit ballooning further and trying to attract investment to a country bruised by three years of economic crisis and political turmoil.

In January, the government said it would not pay cash to compensate the Mexican firm. But analysts say Jakarta has no choice but to offer compensation to Cemex if the spinoffs go ahead.

Reuters contributed to this report.



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