Will Indonesia Let Free Markets Reign? Lessons from Cemex and Seadrill (CX, SDRL)

Two of the companies that I've purchased recently have had some run-ins with the Indonesian authorities, a parallel I thought was pretty interesting.

Apexindo, a big Indonesian driller, is minority owned by SeaDrill (SDRLF.PK), which apparently hopes to acquire the rest of the company. And Semen Gresik, a big Indonesian cement company, is minority owned by Cemex (CX) and they've now given up on acquisition and are trying to sell.

Cemex (CX) began their Indonesian ordeal about four years ago when they bought a minority stake in Indonesian cement maker Semen Gresik. Initially, this sounded like a good idea, as Cemex had an agreement with the Indonesian government to eventually acquire a majority stake that would enable them to reorganize the company more efficiently and unlock some of the value of this inefficient state-owned firm.

But the government reneged on the agreement and Cemex eventually got the message that they were never going to be able to buy a majority stake. Even though their investment in Semen Gresik did fairly well, they weren't going to be able to take over and make the company work in the "Cemex way" -- which made the investment not worth it. I was pleased, as I wrote about a few weeks ago, that Cemex was backing away from the deal and focusing on companies that it could run and operate efficiently. It has now become clear, as this Jakarta Post article indicates, that Indonesia considers Semen Gresik to be of strategic importance and they want an Indonesian owner (sound familiar?).

Fine, and good riddance.

But will the same factors come into play for Apexindo?

Apexindo is the biggest ocean driller in Indonesia, and a major contract water driller for many of the big oil majors that are exploring and producing in the southeast asian oil fields.

And SeaDrill, another company I bought recently, is a 30% owner of Apexindo, with some speculation, including by the new manager of SeaDrill's operations, that SeaDrill has offered the government a takeover bid for either the rest of the company or at least a controlling interest. I wrote about this a while back, and it's clear that Apexindo fits well into SeaDrill's strategic emphasis on consolidating African and Asian drillers.

But it's not clear to me that the government will be willing to sell - for that, I guess, we'll have to wait and see. In this industry, with expected demand running very hot for the foreseeable future, as deep-sea drilling becomes one of the few remaining options for exploring new oil fields, I expect SeaDrill's stake in Apexindo will do well. However, if they are able to bring Apexindo's fleet into their fold and continue with their aggressive consolidation, their leverage and their economies of scale should make for an even more profitable future.

We'll see- the Indonesian and Singaporean governments are big owners of "private" companies through various investing arms, and it remains to be seen whether or not the government is going to be willing to let the free market work if it means that assets that may seem strategic or important, or even points of national pride, fall into the hands of Norwegian or Mexican companies (in these two cases); or, God forbid, American investors like me.