Kimia Farma seeks to attract investors

Kimia Farma seeks to attract investors

The Jakarta Post, Jakarta

Publicly listed state drug producer PT Kimia Farma said it
planned a restructure before selling its pharmacy and
distribution business units in the hopes that it would attract
higher bidders under the government's privatization program.

"If the government wants a better price it should consider
restructuring the company first," Kimia Farma corporate secretary
Dandossi Matram said on Wednesday.

Last year the government sold a 11 percent stake in Kimia
Farma through the Jakarta Stock Exchange at a time when political
instability soured stock investors' confidence.

Kimia Farma used the proceeds to bolster its production and
working capital. This year the government wants to sell a
majority stake in the company, but may now have to shelve the
plan pending its restructuring.

Dandossi said Kimia Farma's inefficient operations and its
"many" business units, making it appear to be lacking focus, have
been considered the factors undermining investors' appetite for
the company.

He said the restructuring plan was aimed at lowering
production costs and disentangling its retail units. This will
allow it to focus on producing drugs, he said.

"We have four business units. Each one is unique and that
makes it hard to focus," he said.

Kimia Farma has two production units of chemical materials and
drugs, one chain of pharmacies and one drug distribution unit.

The first to go, Dandossi said, would be the pharmacy and
distribution units.

He said the pharmacy unit operated 275 drugstores, and it had
planned to double the number over the next three years.

Several of the planned drugstores would run under a joint
operation scheme where private drugstores would allow Kimia Farma
to manage their operations, he explained.

There are now some 6,500 drugstores across the country, but
Kimia Farma controls a 15 percent market share with its 275
drugstores, Dandossi said.

"Our distribution unit's strength lies in networking and a
strong sales staff," Dandossi added.

He said it may take two years to finalize the restructuring of
Kimia Farma.

The government, however, is in dire need of proceeds from the
privatization of state companies to cover the state budget
shortfall.

This year, the government initially targeted to sell Rp 6.5
trillion (about US$730 million) worth of shares in state
companies to cover the budget shorftfall. But the target has been
revised downwards to Rp 3.9 trillion due to a lack of investor
interest.

Despite the country's improved political stability over the
past year, investor interest in state companies remains weak.
Analysts blame the problem on the prolonged global economic slump
and particularly on Indonesia's poor investment climate.

Foreign investors have voiced their concern over Indonesia's
corrupt judicial and legal uncertainties.

Still, the government is eying Rp 8 trillion in privatization
proceeds next year.

The deputy to the state minister of state enterprises,
Ferdinand Nainggolan, said the government had agreed to a spin-
off of Kimia Farma's pharmacy and distribution units.

He said to whet investors' appetite the government wanted to
transform Kimia Farma's corporate image.

"We'll go for an all-out campaign sometime in December," he
said. "The retail (unit) is amazing, foreigners will surely want
to get in on it."

Ferdinand added that with the restructuring plan in progress
the government might have to delay Kimia Farma's second sale
until next year.