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NEWS UPDATES Asean Affairs  8 November 2010

Is Krakatau IPO legal?

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On Monday, November 11, the Deputy Head of Commission XI of the House of Representatives (DPR), Achsanul Qosasi, said that the planned IPO and share price were legally sound as they met the requirements of both Law No. 8 of 2005 on the Stock Market and Law No. 1 of 2003 on State-Owned Enterprises, and had been approved by the DPR in October.

"I do not see reason to stop the IPO since it has met the procedural requirements and has been approved by the previous period of the House," he insisted.

Further, according to Mr, Achsanul, the Capital Markets and Financial Institution Supervisory Agency (*Bapepam-LK*) will continue to provide necessary oversight, and if any securities violations occur then the planned offering can be postponed or even cancelled.

"If turmoil occurs in the market to disrupt state finances as a result of bad information, we will definitely rely on the Bapepam-LK," he added.

Finally, Mr. Achsanaul emphasized that the IPO process was inherently transparent, and that PT Krakatau Steel had demonstrated a willingness to unveil its internal information to all prospective investors.

Despite such assurances, many analysts question the reasons for the IPO and believe the company - Indonesia's biggest steel producer - has been undervalued given the state of the company, the Indonesian steel industry, and the global steel demand outlook.

In a response to the IPO issued on Wednesday (3/11), State-owned Enterprise (SOE) Workers Union Federation, Arief Poyuono, told reporters that IDR 850 per share is too cheap considering the condition of the company and the steel market.

According to Mr. Arief, PT Krakatau Steel was performing well, as over the first semester of 2010 the company managed to secure IDR 997.75 billion of profits over an initial target of only IDR 800 billion. "With more than 24 percent of profits, it is difficult to believe the IPO is offered so cheap," he emphasized. Further, there would soon be an upsurge in global demand for steel, which would only increase demand and improve the share price, he opined.

Mr. Arief pointed out that the IPO underwriters - PT. Mandiri Securities, PT. Bahana Securities, and PT. Danareksa Securities - were all appointed by the Minister of SOE, suggesting that the company had deliberately been undervalued. According to Mr. Arief, this would allow political insiders to buy up the shares and benefit in the secondary market as soon as the shares became listed on the Indonesian Stock Exchange (IDX).

The union said it will sue Indonesian president Sussilo Bambang Yudhoyono and SoE minister over the sale price of Krakatau Steel.

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