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KS diverts IPO funds to build new steel plant
Rethink: State-owned PT Krakatau Steel Tbk
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Rethink: State-owned PT Krakatau Steel Tbk. president director Irvan Kamal Hakim (second left) chats with the companyâs financial director Sukandar (second right), president commissioner Zacky Anwar (left) and production director Hilman Hasyim after a shareholders meeting in Jakarta on Thursday. The company agreed to use the US$105.6 million from its initial public offering (IPO) proceeds to fund a new hot-strip mill instead of its initial plan to expand and modernize its existing hot-strip mill. (JP/Nurhayati) (second left) chats with the companyâs financial director Sukandar (second right), president commissioner Zacky Anwar (left) and production director Hilman Hasyim after a shareholders meeting in Jakarta on Thursday. The company agreed to use the US$105.6 million from its initial public offering (IPO) proceeds to fund a new hot-strip mill instead of its initial plan to expand and modernize its existing hot-strip mill. (JP/Nurhayati)
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span class="inline inline-none">Rethink: State-owned PT Krakatau Steel Tbk. president director Irvan Kamal Hakim (second left) chats with the company's financial director Sukandar (second right), president commissioner Zacky Anwar (left) and production director Hilman Hasyim after a shareholders meeting in Jakarta on Thursday. The company agreed to use the US$105.6 million from its initial public offering (IPO) proceeds to fund a new hot-strip mill instead of its initial plan to expand and modernize its existing hot-strip mill. (JP/Nurhayati)
Publicly listed steel producer Krakatau Steel (KS) will divert the remaining proceeds from its initial public offering (IPO) in 2010 to build a new hot-strip mill as opposed to expanding the existing one, as initially planned.
KS president director Irvan Kamal Hakim said that a general shareholders' meeting, held on Thursday, had approved the company's proposal to use US$105.6 million of the IPO's proceeds to finance the construction of the new mill. The funds, 36 percent of the Rp 2.59 trillion raised by the company during the IPO, had initially been allocated to upgrade and modernize the company's existing plant.
Irvan did not provide many details about the proposed plant, saying only that the firm was currently preparing the tender for the plant's construction.
'We are confident that with the new plant, we will be far more competitive,' Irvan said, adding that the construction of the new plant would require lower investment but would increase the company's output capacity.
'We have yet to disclose a definite figure for the investment, but our feasibility study shows that we will probably need about $481 million. The initial production capacity will be about 1.5 million tons of steel per year, increasing to about 3 million tons per year with an additional 30 percent of investment,' he explained.
According Krakatau's IPO prospectus in 2010, a portion of the IPO's proceeds was to be used to boost production at its existing plant to 1.1 million tons of steel per year, or 45.83 percent higher than the company's total steel output at the time.
According to the company's published annual report, Krakatau had utilized Rp 1.62 trillion or 62.54 percent of its IPO funds as of December last year.
About 40 percent of the used funds went to finance the company's Krakatau-Posco project ' a joint venture with South Korea-based steel giant Pohang Iron and Steel Company (Posco) ' while a further 39 percent was allocated to the company's working capital, and the remainder was for investment in its subsidiaries.
The company aims to see its total production double to 7.15 million tons of steel per year in 2018. The additional output is expected to come from both the company's subsidiaries and joint ventures with other firms.
The firm's latest addition, the Krakatau-Posco steel mill in Cilegon, Banten, which absorbed $2.66 billion in investment, has a production capacity of 3 million tons of steel per year.
The company's current steel output stands at 3.15 million tons per year, beyond additional output from Krakatau-Posco.
Krakatau, which still relies predominantly on its steel production, has set a target to boost the contributions from its other business units by about 50 to 60 percent in 2018. Currently, steel production contributes 90 percent to Krakatau's sales.
It is also planning to boost its downstream business by increasing production of its higher-grade steel ' which is used in the automotive and gas sectors ' by more than 300 percent to 860,000 tons per year in 2018 from the current 200,000 tons.
Krakatau posted a net loss of $13.9 million in 2013, despite an increase in sales compared to the previous year, due to stagnant steel prices and the depreciation of the rupiah against the US dollar.
With the 2013 results, the company has now booked net losses two years in a row after a loss of $20.4 million in 2012.
This year, the company plans to disburse $508 million to finance its ongoing projects.
Krakatau is working on a number of large-scale, high-cost projects including a port expansion, a power plant, a slag powder facility and the development of a water pipe system.
