Ispat still in running for Krakatau steel bid

JAKARTA (JP): Netherlands-based Ispat International has priority on a tender for privatization of state-owned steelmaker PT Krakatau Steel if it can match the most competitive bid, an official said yesterday.

Deputy to the state minister for the empowerment of state enterprises, Markus Permadi, said the normal competitive bidding process for Krakatau's privatization had been modified to accommodate its potential buyers as the company had not attracted many interested investors.

"The unsolicited bidder (Ispat) can conduct due diligence before other bidders, then it can bid an initial price which we will accept and announce publicly if attractive enough," he said.

The government would then invite other bidders to conduct their due diligence and to bid initial offers which would have to be higher than the offer of the unsolicited investor, he said.

If the solicited bidders came up with higher prices, the unsolicited investor could raise its offer to the level the solicited bidders had offered and would have the priority for it, he added.

A purchase deal for Krakatau by Ispat came under fire last week when Krakatau's top management disclosed publicly that Tanri had signed a Memorandum of Understanding (MOU) with Ispat on May 21.

Krakatau's board of directors claimed they were neither involved in the process nor informed about the acquisition plan by Ispat, which wholly owns a steel company PT Ispatindo in Surabaya.

It was feared that its acquisition of Krakatau would give Ispat a monopoly in the domestic steel wire and rod industry.

Tanri said earlier the MOU signing was not a final deal, and he invited other investors to enter the competitive bidding.

Yesterday, tens of people from Cilegon, West Java, where Krakatau Steel is located, demonstrated at Tanri's office at Jakarta Stock Exchange Tower II, demanding that the deal with Ispat be canceled.

Tanri met them in the lobby and asked their support in the privatization of the firm. The demonstrators then dispersed peacefully.

Markus said some of the state firms being privatized by the ministry were not attractive enough to invite investors.

The government would give priority to any investor which showed their interest in becoming strategic partners of these companies, he said.

The government could modify the privatization process to suit the interested investors. They could sign MOUs with the government which would allow them to conduct due diligence without waiting for other bidders.

"We are afraid that we may lose them because of the uncertainty regarding stability in the country," Markus said.

But other companies, such as telecommunication firms PT Indosat and PT Telkom, were flooded with bidders, as they had sound financial performance, management and earned dollar- denominated incomes, he said.

Several investment banks and fund managers have been attracted to acquire stakes in Indosat and Telkom, he added.

Normally, bidders had negotiate a lengthy process involving due diligence and evaluations before it could sign the confidentiality agreement and make offers.

During the privatization process, the management of the state- run companies would not be involved in approving or rejecting offers from potential buyers, Markus said.

They would only be involved when potential buyers conducted due diligence, he added. (das)