Government agrees to sell Krakatau Steel to Ispat

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)