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June 28, 2008

Indonesia: Krakatau Steel likely to opt for IPO
Indonesian steel firm PT Krakatau Steel is likely to launch an initial public share offering in November or December, the firm's chairman told Reuters on Friday.

Krakatau Steel, which has assets worth an estimated 11 trillion rupiah ($1.20 billion), is one of 37 Indonesian state firms slated for privatisation this year to help fund a widening budget deficit.

ArcelorMittal SA, the world's largest steelmaker, and BlueScope Steel Ltd, Australia's largest steelmaker, have shown interest in acquiring a stake in the firm.

The IPO plan still needs to be approved by parliament, but the government has said it is aiming to sell a maximum 40 percent stake in the firm.

"The government has agreed with directors and commissioners to use the IPO option," said chairman Taufiequrrahman Ruki, adding the best timing for the share offer is likely to be November or December.

"We opted for an IPO because it can improve the culture of good corporate governance, while in a strategic sale, one party might have more influence.

Our concern is domestic demand, while foreign firms' concern might be to the international market."

Ruki also said the government and parliament had allowed a maximum of 49 percent stakes sales, if the IPO went ahead.

Any share sale of state-owned enterprises has to be approved by parliament, which could hold up the process, particularly if a foreign investor is involved.

Separately, Karakatau Steel's president director Fazwar Bujang said the firm would appoint the underwriter for the shares offering after the parliament approved the plan. He also said the firm would start a roadshow in Singapore next week.

The government had said it was considering selling a stake to strategic investors, but nationalist politicians criticised the option fearing the firm would end up in foreign hands.

Local protests over the price tag, which was seen as too low, and the lack of competitive bids forced the government to scrap a memorandum of understanding to sell Krakatau Steel to Ispat International NV in 1998.

The government wants to keep a majority stake in Krakatau Steel, which produced 2.25 million tonnes of steel products in 2007, or about 30 percent of Indonesia's total steel demand.

The firm aims to produce 2.5 million tonnes of steel products this year and to double the figure to 5 million tonnes by the year 2011.

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