Gresik pledges assets to finance Rp 6.97t plants

Publicly listed cement producer PT Semen Gresik will pledge its assets in an attempt to seek external funding to support the construction of two cement plants in Java and Sumatra, worth Rp 6.97 trillion (US$752.76 million).

The company aims to raise 70 percent of the total funds needed, or about Rp 4.88 trillion, from external funding, according to an announcement published on Friday.

“The company will use third-party funds, which will be guaranteed with assets worth no more than 50 percent of the company’s net assets,” Semen Gresik’s announcement said, adding that the remaining 30 percent of the funds will be supported by internal cash.

According to Semen Gresik’s financial report for the first quarter of the year, the company’s total assets are worth Rp 21.42 trillion.

Semen Gresik said that it would seek long-term financing with a tenor of between five to 10 years from financial institutions, debt instrument issuances and other mechanisms.

The company will seek shareholders’ approval to pledge its assets during an extraordinary meeting scheduled for June 26.

Semen Gresik president director Dwi Soetjipto said earlier in the week that the company targeted to secure loans worth Rp 4 trillion from several banks to finance the construction of the new plants.

“We will use funds from the loans to build our two new plants next year,” Dwi said.

According to the company’s announcement, the first cement plant will be built in Sumatra with an investment of Rp 3.25 trillion, excluding interest during construction (IDC). The construction of the Sumatran cement plant, which will be called SGG-III, will begin in the fourth quarter of the year and is scheduled to start production in the second quarter of 2015. SGG-III, which will have a production capacity of 3 million tons per year, will only need Rp 195.37 billion this year.

The second cement plant will be built in Java with an investment of Rp 3.72 trillion, excluding IDC. Semen Gresik will start the construction of the cement plant, which will be called SGG-IV next year and is scheduled to be finished in 2016. SGG-IV will also have an annual production capacity of 3 million tons.

The two cement plants are expected to help the company maintain its market share in the domestic market.

Semen Gresik currently has 11 factories nationwide and will see the completion of one more plant called Tonasa V in Pangkep, South Sulawesi, later this year. The company’s production capacity is estimated to reach around 22 million tons this year and 25 million tons next year when Tonasa V and Tuban IV meet their production peak.

According to figures from the Indonesian Cement Association, Semen Gresik, along with its subsidiaries Semen Padang and Semen Tonasa, sold 6.65 million tons of cement in the domestic market during January to April.

The national consumption of cement reached 16.68 million tons during January to April, a 16.6 percent increase compared to 14.31 million tons in the same period last year.

According to the figure, Semen Gresik’s market share in domestic market stands at 39.88 percent.

Last year, the country’s cement production capacity reached 54.5 million tons in a market consuming 48 million tons. With an assumption of 6.74 percent growth in demand, it is estimated that production capacity will fail to meet national consumption in 2013 if cement producers do not establish more plants.

Shares in Semen Gresik (SMGR) closed at Rp 10,950 a piece on Friday, a 3.52 percent drop from Rp 11,350 a day earlier.