Government agrees to sell Krakatau Steel to Ispat
JAKARTA (JP): State firm PT Krakatau Steel (KS) confirmed yesterday that the government had agreed to sell up to 51 percent of the company's shares to Netherlands-based Ispat International.
But the company's executives said that they were not consulted about the deal.
Krakatau Steel's acting president, Djoko Subagyo, said he and members of the company's board of directors and commissioners were only invited to attend the May 7 signing of the Memorandum of Understanding (MOU) between the government and Ispat.
"Please note that we were there to witness the signing ceremony, but we, the board of directors and commissioners, never got reports on the deal, not even a copy of the MOU," Djoko told reporters, adding that the decision seemed "illogical".
He referred reporters to State Minister of the Empowerment of State Enterprises Tanri Abeng, who signed the agreement, should there be more questions regarding Krakatau Steel's privatization.
According to the MOU, the Indonesian government has agreed to sell 49 percent of Krakatau Steel's shares but will allow Ispat to buy up to 51 percent if the offer is attractive.
The sales of Krakatau Steel's 49 percent will be worth about US$400 million, or half of the company's estimated assets of $800 million.
The MOU also says that Ispat will complete all due diligence by June 21 and the binding and sales purchases agreement will be executed by June 30.
It says Krakatau will not disclose any nonpublic information concerning the deal to a third party without the former's written consent until July 7.
Krakatau Steel, the country's largest steel producer, is one of the seven state companies to be privatized by the government either through initial public offerings or private placement by inviting strategic investors.
The company's former president, Soetoro Mangoensoewargo, who resigned from his job Monday, questioned the legitimacy of the MOU deal, which he called "mysterious".
"I was present at the ceremony. After signing the agreement Tanri pocketed the MOU and took it away with him," Soetoro said yesterday.
"Neither I nor (Krakatau's chief commissioner) Tunky Ariwibowo was informed about the deal, prior to or after the signing. I even got the copy of the MOU from someone else," he said.
Both Soetoro and Djoko said there had not been any due diligence following the agreement signing.
Soetoro said the MOU violated earlier strategic agreements about Krakatau's privatization.
The government had previously planed to sell 25 percent to 30 percent of the company's shares during the first phase of privatization.
After that, a further 15 percent to 19 percent of the shares were to be offered to the public, leaving the state owning the remaining 51 percent.
Soetoro said that if Ispat owned 49 percent of Krakatau's shares, there would a new monopoly in the domestic wire rod market, as Ispat's fully owned local subsidiary, the Surabaya-based PT Ispat-Indo, is currently the largest producer of wire rods, producing 450,000 metric tons annually.
If Ispat owns Krakatau Steel, which now produces 300,000 tons of wire rods a year, both companies' production would account for 80 percent of the domestic capacity.
Soetoro also said he objected to the fact that Krakatau Steel was to fall into the hands of Ispat, which he called "a company whose specialty is buying bankrupt companies".
"Krakatau Steel has been performing well, and has not suffered losses since 1986," he added.
Producers of nails, welded wires, iron wires and wire mesh told reporters yesterday they disapproved of Ispat's purchase of Krakatau Steel.
"We are worried that it will spur unhealthy competition, a monopoly in the wire rod industry for Ispat-Indo," said Supri Handono, the chairman of the association of smelting wire industries.
The company expects its net profit to rise to Rp 200 billion from Rp 182 billion last year, and its sales to increase to Rp 3.5 trillion from Rp 3 trillion, due to a drastic rise in exports which now total 80 percent of the production. (das)