Krakatau Steel revives talks with strategic partners

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Thu, 11/27/2008 7:11 AM  |  Headlines

PT Krakatau Steel (KS), the nation’s largest steel manufacturer, is reviving talks with strategic partners in a bid to fund an ambitious business expansion project, possibly replacing a previous plan to raise the funds through an initial public offering (IPO).

The government, as the majority shareholder, has put on hold plans for an IPO out of fear such a move may fail amid a diminished appetite for investment due to the current global liquidity crisis.

State Minister for State Enterprises Sofyan A. Djalil said Wednesday the company was reopening talks with a number of strategic partners as it was in dire need of fresh funds to support its business expansion.

“It is not because of today’s (crisis) that the expansion plan will be delayed,” he said.

“We must think of something, we cannot just wait for the crisis to end before we find the solution.”

Sofyan said the ministry and the company’s management would further discuss the move meant to fund the KS’s plan to double its production capacity as demand at home rises.

The company can produce a maximum of 2.5 million tons of steel per year, while local demand for the metal is forecast to reach 6 million tons per year.

The demand is expected to rise to between 8 million and 10 million tons per year by 2012.
KS has said achieving its production goal will require a minimum of US$1.2 billion.

Earlier this year, the government proposed that KS team up with global players under a strategic partnership scheme.

However, the company’s management — with the backing of workers and a number of legislators — opposed the plan, forcing the government to opt for an IPO as an alternative fund-raising scheme.

The company went ahead with the IPO, setting a target to raise Rp 2.5 trillion (US$210) by selling 20 percent of its stake by the end of this year.

The current unfavorable stock market conditions — which have seen prices dive such as to make the market one of the worst performers in the region — has forced the government to reconsider a strategic partnership for KS, Sofyan said.

A number of internationally recognized companies, including India’s Tata Group, Australian-based BlueScope Steel and the world’s largest steel producer, ArcelorMittal, had expressed interest in injecting funds into KS in return for a stake in the company.

Less than a month ago, Luxembourg, where ArcelorMittal’s headquarters are located, lobbied the Indonesian government to promote a joint venture between the two steel giants.

ArcelorMittal produced 116 million tons of steel last year, or the equivalent of 10 percent of global steel production. The Mittal family started their global empire by establishing PT Ispat Indo in Sidoarjo, East Java, in 1976.

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