August 30, 2008

Indonesia sees PT Krakatau sale as strategic move

Reuters reported that Indonesia is looking for a strategic investor for state owned PT Krakatau Steel and will invite South Korea's POSCO to take a stake.

Mr M Lutfi chairman of the state investment agency told reporters that "Strategic sales are more suitable to double the company's capacity. Besides, conditions are not so favorable for IPOs. The steel industry is very competitive, which forces us to strike an alliance with global steel players."

He said that several potential strategic investors have already expressed an interest in Krakatau Steel, including ArcelorMittal and BlueScope Steel Ltd. He added that the agency is also inviting POSCO to participate in the privatization of Krakatau Steel.

The government scrapped a memorandum of understanding to sell Krakatau Steel to Ispat International NV in 1998 following protests over the price, which was seen as too low, and the lack of competitive bids. The government wants to keep a majority stake in Krakatau Steel, which produced 1.8 million tonnes of steel products in 2007, or 30 percent of Indonesia's total steel demand.

Krakatau Steel with assets worth an estimated IDR 11 trillion (USD 1.18 billion), is one of 37 state firms slated for privatization to help fund a widening budget deficit. While the government has considered an initial public offering for the Java based steel firm, the head of the country's investment board said that it would be better to find a strategic investor who could help it to expand.

Indonesia is aiming to raise IDR 500 billion from privatization, according to the revised 2008 budget, down from an earlier target of IDR 1.5 trillion.