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tate-run giant Semen Indonesia (SMGR) announced on Friday that it had signed an offtake agreement with its Vietnamese subsidiary Thang Long Cement Company (TLCC) to help the latter refinance its US$140 million debts.

The publicly listed cement producer said in an official statement that it had signed an affiliated agreement with the TLCC to absorb the latter'€™s output, in a bid to strengthen the TLCC'€™s financial ability to restructure its debts.

The agreement will be valid for six years, the statement read, with the price for every ton purchased to be decided later during transactions.

Semen Indonesia corporate secretary Agung Wiharto said the agreement stipulated that his company, which owns a 70 percent stake in the TLCC, would help the latter meet its quarterly export target.

'€œThe TLCC has to pay US$7 million in installments every three months for five years to pay off all its debts. To generate such an amount of money, it has to export 140,000 tons of cement during the period of time,'€ Agung said in a phone interview.

The scheme means that the Hanoi-based cement producer will have to export 24.35 percent of its annual output to restructure its debts. The TLCC'€™s production capacity currently stands at 2.3 million tons.

Semen Indonesia, Agung explained, would purchase and resell the TLCC'€™s products if the Vietnamese firm fell short of its quarterly export target.

He said Semen Indonesia would not prepare a specific amount of capital for the agreement as it would only absorb the produce if its subsidiary failed to meet the target.

He added that the TLCC'€™s existing debts, which would mature in five years, were sourced from several lenders and were granted before Semen Indonesia took over the company.

The TLCC began to be consolidated into Semen Indonesia'€™s financial performance in November 2012, when Indonesia'€™s biggest cement producer acquired 70 percent of the TLCC'€™s shares from Geleximco with a total transaction value of $157 million.

The TLCC'€™s annual capacity made only 7.7 percent of Semen Indonesia'€™s total production of 30 million tons as of last year, but the Vietnamese subsidiary holds great importance to pave way for the state-run firm to explore the Southeast Asian market.

Among the reasons for acquiring the company, Semen Indonesia'€™s annual reports said, is that Vietnam currently produces 70 million tons of cement annually while it needs only 50 million tons of cement per year, making it a promising country to become an export base for other Southeast Asian countries.

In order to strengthen Semen Indonesia'€™s position in Vietnam and to further support its Southeast Asian business expansion, the company is planning to spend $300 million on a new plant in Vietnam next year.

The new plant will have a production capacity of 1.5 million tons of cement per year. Its construction, which is slated to commence early next year, will take three years to be completed.

Just like the existing plant, the output of the new one will be allocated for the Vietnamese market and for exports to Singapore, Cambodia, Laos and Myanmar.