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harmaceutical company PT Kimia Farma aims to raise up to Rp 1.7 trillion (US$187 million) from a rights issue, which will be carried out following the company’s merger with another state-owned pharmaceutical firm, PT Indofarma.

According to a file submitted by Kimia Farma to the Indonesia Stock Exchange (IDX) on Tuesday, the company will off-load approximately 4.7 billion shares. The company said the rights issue would be carried out after the formation of a holding of state-owned pharmaceutical firms, which remained in progress as a government regulation to form the legal basis of the holding has not yet been issued.

“The company’s rights issue will be in one package with the plan being to group together with state-owned pharmaceutical companies. A postponement or cancellation of the rights issue plan is pending approval of the government regulation from the House of Representatives. Currently, the regulation’s preparation is with the Office of the Coordinating Economic Minister,” Kimia Farma said in the file.

“Following the issuance of the regulation, the company will inform its minority shareholders over the company’s corporate actions and the [majority] shareholders’ actions,” the file continued.

Kimia Farma is currently 90.03 percent owned by the government and 9.58 percent owned by the public.

Kimia Farma president director Sjamsul Arifin said that the targeted funds and the number of shares to be off-loaded during the rights issue were subject to change.

“We are awaiting confirmation from the Office of the Coordinating Economic Minister about how many shares are to be off-loaded and when the rights issue will be performed,” Sjamsul told The Jakarta Post over the phone.

Sjamsul said the government wanted to maintain its majority ownership in the company, of at least 70 percent. “For our part, we want government ownership to be no more than 52.5 percent so that we can off-load more shares and obtain more funds,” he said.

Sjamsul said his company would use the funds gained to improve capacity in its factories, particularly those located in Jakarta and Bandung.

“We want to double our production capacity to 4 billion tablets per year in anticipation of the implementation of social health insurance under the Social Security Providers (BPJS) Law [in 2014]. We will also develop our new business of manufacturing infusion pumps and injection needles,” he said, adding that the company would need up to Rp 1.2 trillion for the expansion.

“If we are only allowed to off-load 20 percent of the shares [to maintain government majority ownership of 70 percent], we will only obtain around Rp 700 billion. In that case, we would need to seek loans of up to Rp 500 billion,” Sjamsul said.

Recently, the Coordinating Economic Minister Hatta Rajasa said that Kimia Farma would perform a rights issue after a share swap with Indofarma. The share swap is an option to merge the two companies — a restructuring measure from the State-Owned Enterprises Ministry, which aims to reduce the number of state-owned firms in the country.

However, the mechanism of merging Kimia Farma and Indofarma is still unclear.

Indofarma president director Djakfarudin Junus said the pharmaceutical companies’ merger remained at the stage of determining the value of assets of the two companies.

“We have to re-evaluate our business aspects and assess what will happen once the merger is completed. After completion, the newly merged companies’ shares price should increase and there should be access to a larger market,” Sjamsul said.

Kimia Farma’s assets stood at Rp 1.84 trillion as of September 2011. The company has yet to announce its 2011 financial results. Meanwhile, Indofarma’s assets stood lower at Rp 912 billion during the same period, leading to speculation that Kimia Farma is more likely to be the holding company for state pharmaceutical firms. However, Indofarma’s assets will increase as the company recently performed a quasi-reorganization, which eliminated a deficit of Rp 57 billion and revalued its assets.