Fears rise over investor confidence as govt warned against scuttling Cemex

The Jakarta Post, Jakarta

Independent experts have warned the government not to thwart the planned sale of Cemex's shares in PT Semen Gresik (SG) to local investor Rajawali Group as this would only further damage investor confidence in the country.

"This debacle has only served to create new uncertainty among investors," said Centre for Strategic and International Studies (CSIS) economist Hadi Soesastro on Tuesday.

Meanwhile, business leader Anton Supit commented, "It reflects a very narrow idea of nationalism. This is not good for the investment climate."

The two were commenting on reports that State Minister for State Enterprises Sugiharto was seeking ways to foil plans by Mexican-based cement giant Cemex SA to sell its 24.9 percent stake in SG, the country's largest cement maker, to Rajawali.

Cemex recently signed a conditional sale and purchase agreement with Rajawali to sell the SG stake for US$337 million. But the transaction is subject to government approval as the state is the majority shareholder in SG. The government has until this week to respond.

The world's third largest cement maker wants to sell the SG stake after the government failed to fulfill an investment deal made in 1998 to allow Cemex to gradually become the majority shareholder in SG. The government's refusal to go ahead with the deal was the result of opposition from some politicians and a unit of SG in West Sumatra. If the divestment plan goes through, Cemex will automatically drop its arbitration case against the government, which could have to pay up to US$500 million if it loses the case in an international arbitration forum.

But reports say that Sugiharto wants the shares to be purchased by state-owned enterprises or companies owned by regional administrations "to secure the national interest." However, some lawmakers and finance ministry officials say this is unrealistic given the limited financing capacity of the government and the existence of other more pressing needs. The Finance Ministry's budget director, Ahmad Rochjadi, has said that the 2006 budget has not allocated any funds for the purchase of the SG shares, and that any move to seek funding for this would require the approval of the House of Representatives, a lengthy process that would not be completed in time as the government must make a decision soon under its agreement with Cemex.

Meanwhile, a source, who requested anonymity, said that Sugiharto was planning to squeeze the money from state-owned enterprises or resort to off-budget funds to buy the SG shares.

"It's not transparent, and it stinks of the old bad habits of the New Order regime," Hadi said, referring to the Soeharto administration, which often resorted to off-budget funds to finance dubious projects.

"I don't understand why a senior government official is creating this mess. An investor should be given a free entry and exit strategy. The government must meet the deadline for its response to Cemex's offer," Anton said
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