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Krakatau Steel should choose IPO option: Economists
State steel producer PT Krakatau Steel should opt for an initial public offering (IPO) to ensure its accountability to the public and to increase state profits, a discussion heard Tuesday
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State steel producer PT Krakatau Steel should opt for an initial public offering (IPO) to ensure its accountability to the public and to increase state profits, a discussion heard Tuesday.
"An IPO would be more transparent because there will have to be an audit, asset re-evaluation and so on before the company can go public," said Faisal Basri, an economist from the University of Indonesia.
"On the other hand, a strategic sale may well raise capital sooner, but would risk under-pricing because it takes a while for a company's share price to gain value," he added.
The government plans to privatize Krakatau Steel by way of an IPO or a strategic sale to boost its production amid rising domestic demand for the metal, which is expected to rise to between 8 million and 10 million tons per year by 2012.
A strategic sale would involve the sale of chunks of the company to selected investors.
The current annual domestic demand for steel stands at 6 million tons, 2 million tons of which are imported. Krakatau Steel has a maximum capacity of 2.5 million tons per year -- most of which is sold to the domestic market -- making it the second largest maker of the commodity in the country.
Krakatau Steel chief commissioner Taufiequrachman Ruki said the company needed between US$970 million (Rp 9.06 trillion) and $1 billion to raise production capacity and meet demand.
Taufieq, a guest at the discussion, said the company would be able to hold an IPO late in the year's fourth quarter.
"An IPO in October would require everyone in the company to stay awake for the next 6 months," Taufiq said.
Budi Ruseno, a capital market observer from Bhakti Kapital and also a panelist, said the State Minister for State Enterprises Sofyan Djalil was wrong to rush Krakatau Steel into holding an IPO as early as September.
"A hurried IPO could lead to an inaccurate audit and mislead potential investors," Budi said, adding that the company should be allowed to hold an IPO next year to allow time for plans to be finalized.
In preparation for the House's decision, the company has re-evaluated its assets and has hired CIMB-GK Securities as a financial advisor.
Krakatau Steel's management plans to relinquish 20 percent of its shares and gain Rp 2.5 trillion in the event of an IPO. (anw)
