Krakatau Steel, Posco to Set Up Steel Making JV in July

Indonesia Finance

Friday, 25 June 2010 15:08

State Enterprise Minister Mustafa Abubakar said on Friday that he expects State-owned steel maker PT Krakatau Steel to set up steel making joint venture company with South Korea’s Pohang Iron & Steel (Posco) in July.

“We are now just waiting for joint agreement, expected by end July,” Mininister Mustafa was quoted by vivanews.com on Friday.

He said a number of problems that have hampered the move appeared to have been resolved, including the price of land to be acquired for building the steel plant.

He said as for land price, both parties agreed to set land price at US$72-74 per meter, higher than Posco’s demand of US$65 per meter and lower than the price sought by Krakatau Steel at US$80 per meter.

He said initially, Posco would hold 30 percent of shares in the JV company and the remaining 70 percent will be held by Krakatau Steel. The ownership could change in the future to 45 percent for Posco and 55 percent KS.

The government has said earlier the JV would spend around $6 billion to build a steel mill. The negotiation to set up a JV has been going on for months as the two sides involved in tough negotiations, including the issue of ownership as well as management composition. Reports earlier said that Posco wanted a majority stake of 70 percent in the JV.

The State-owned steel company currently has capacity of 2.5 million tons of steel per annum and expects to raise it to 3.5 million tons, once the JV commence operation. If the JV is agreed, the two sides could immediately begin the construction and would complete it in 2013, as stated by a Krakatau Steel executive earlier.

Krakatau Steel expects to sell 3.1 million tons of steel this year, up from 2.3 million tons last year. In the first quarter, its sales volume rose 53 percent from the same period last year to 675,000 tons due to strong local demand for infrastructure projects.

The plan to set up a joint venture coincides with the State steel making firm's plan to launch an IPO. It has started selecting international selling agents for the IPO plan since June 3. A number of international well-known investment houses, such as JP Morgan, UBS, Credit Suisse, Goldman Sachs and Nomura, have expressed interests to become international selling agents of the company's IPO plan.

Krakatau Steel president Fazwar Bujang said during a hearing at the House in February that the company was targeting to launch the company's IPO in November this year. The company will use first semester financial reports as basis for the IPO. The maximum of shares to be sold through the IPO was set at 30% and could offer further shares in the future through secondary offering.

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