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The race to win Krakatau

Daenul Hay-Krakatau Steel
President Director

Indonesia’s state-owned steel company PT Krakatau Steel has been making front page headlines along with such big name would-be suitors as ArcelorMittal, Tata Steel, Essar and BlueScope.

The Indonesian government seems increasingly serious about divesting its stake in the country’s largest steelmaker as it has budgeted for a massive rise in public spending this year to repair crumbling strategic infrastructure, which is seen as an obstacle to attracting much-needed foreign investment.

This year, the government plans to sell stakes in 44 state firms including train manufacturer PT INKA, Bank Negara Indonesia and national flag carrier Garuda Indonesia.   

Yet, it has not yet made a choice on Krakatau Steel but is still considering whether to privatise the company through an initial public offering (IPO) on the stock market, or by conducting a strategic sale, where stake would be sold in blocks to selected potential investors.

• Sofyan Djalil,
Minister for State Enterprises

Most observers believe the divestment will take the form of a strategic alliance with a global steel company, which should significantly help improve its performance, particularly in supplying iron ore.

The search for such a suitor started last October when Krakatau’s president director, Daenul Hay said Krakatau Steel would explore the possibility of developing a strategic alliance with four world companies and with domestic steel producers.

Those included Essar International Ltd (India), Bao Steel, Ispat Ltd and Nanjing Iron Steel Co. Ltd. Hay was expecting the alliance to be realised in 2008 before the company conducted an initial public offering in 2009. The alliance, he noted, was needed to meet the company`s production target of 20 million tons in 2020 from the two million tons a year.

More than seven months have passed since then and there is now a new lineup of suitors: ArcelorMittal, the world’s biggest steelmaker owned by ethnic Indian Lashmi Mittal, Tata Steel and Essar Steel, both from India, and Australian-based steel maker BlueScope Steel Ltd.

So far, there is no clear sign of any company leading the race although State Minister for State Enterprises Sofyan Djalil is categorically supporting a strategic sell-off of Krakatau Steel instead of an initial public offering, citing the current adverse conditions of the global market.

• Lash Mittal: Shifting focus
on emerging markets

A strategic sale means the government will offer a block of shares to a limited number of potential investors. Sofyan has concerns over the current state of the global economy and capital markets, which he believes will dampen the appetite of public investors, if the government chooses to put the company on the IPO block.

Capital and financial markets across the globe have been hit hard by concerns over a US recession that could well turn into a global economic slowdown. However, the government does not appear to be in a hurry and it will most probably carry out further study before deciding which option should be used to privatise the nation’s biggest steel maker.


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