PT Krakatau Steel Tbk (KRAS) plans to issue Mandatory Convertible Bond (MCB) with total amount Rp3 trillion (US$204.08 million) - Photo by the Company

JAKARTA (TheInsiderStories) – Indonesia’ steel-maker, PT Krakatau Steel Tbk (IDX: KRAS) ready to list four of its subsidiaries shares in 2021, said the CEO last week. The companies are PT Krakatau Bandar Samudera, PT Krakatau Tirta Industri, PT Krakatau Industrial Estate Cilegon (KIEC), and PT Krakatau Daya Listrik.

“We want to find the best time. We plan to do it next year,” said Silmy Karim in one seminar.

According to the former CEO of PT Barata Indonesia, the initial public offering (IPO) is the state-owned firn’ commitment to fulfill an agreements with banks in the context of debt restructuring. The divestment strategy is part of the Krakatau Steel‘ larger commitment to restructure its debt worth of US$2.2 billion from 11 banks.

This debt restructuring has been agreed upon in advance by creditors since the beginning of last year. The creditors has been agreed to extend the debt until 2027 from earlier 2019. After the completion, the producer saving interest costs $466 million.

“Through the restructuring session we able to cut our interest costs from $847 million to $466 million in nine years period. This debt restructuring involves 10 banks,” Karim told reporters on Jan. 28, 2020.

Part of the lenders are PT Bank Mandiri Tbk (IDX: BMRI) worth of $618 million, PT Bank Negara Indonesia Tbk (IDX: BBNI) $426 million, PT Bank Rakyat Indonesia Tbk (IDX: BBRI) $337 million, and PT Bank CIMB Niaga Tbk (IDX: BNGA) $238 million. After the debt restructuring, Karim said, the company will have a positive impact to the profitability.

This year, Krakatau Steel optimism to create profit even in the small margin. In the agreement, the company has a payment relaxation to lower cost financing but should pay the debt by three schemes, tranche A with the operational fund, tranche B with divestment fund and tranche C1 with the rights issue proceed.

After the restructuring completed, KRAS rescheduled the payment date to the next 10 years, starting in 2019. The company will do several initiatives and sell non-productive assets to pay the debt, Karim added. The issuer also pursue its performance by optimizing the production to 3.5 million ton.

Karim is optimistic to achieve this target by looking at the October result that sold 200,000 tons HRC. He revealed. the production could be supported by reducing steel imports which estimated to grab EBITDA of $250 million. Therefore, he is approaching several ministries to decrease steel imports, so it is able to support the domestic steel industry.

Karim said, the company still has debt with four banks includes PT Bank CIMB Niaga Tbk (IDX: BNGA), Standard Chartered Indonesia, PT OCBC NISP Tbk (IDX: NISP) and PT Bank DBS Indonesia which reached 22 percent of the total debt.

Due to the debt problems, on Dec. 5, 2019, the company had stopped operating of steel and blast furnace factory because it was considered unable to produce steel at competitive prices. Now, he said, the producer will activate the blast furnace again and to adjust the capacity.

Karim said, Krakatau Steel is more selective in using its capital expenditure budget for this year inline with the company’ strategy to improve the  financial performance. For this year, he stated, the issuer only continuing the second hot strip mill project.

In the first semester of 202, its net profit dropped to $4.51 million from previously in the first quarter recorded $74.14 million caused the operating costs increased by 27.5 percent on annual basis. Currently, the manufacturer also pursue its performance by optimizing the production to 3.5 million ton.

Karim is optimistic to achieve this target by looking at the October result that sold 200,000 tons HRC. He asserted the production could be supported by reducing steel imports which estimated to grab EBITDA of $250 million. Therefore, Karim is approaching several ministries to decrease steel imports, so it is able to support the domestic steel industry.

Earlier, Karim said had a chance to spin off separate subsidiaries. The strategy was carried out as part of the steel producers debt restructuring. Its also being carried out so its unit is more efficient and higher productivity. Its estimated that the divestment of the subsidiary’ shares will be implemented until 2023.

The company also has conducted its first production of hot-rolled coil (HRC) steel from the results of its newest steel smelting plant, Blast Furnace. HRC is produced at the Hot Strip Mill facility which is good or prime quality, so it meets commercial steel specifications. The total weight is 22.9 tons for each HRC.

With the production of steel slabs and HRC sourced from the blast furnace, it will encourage the company to produce high value-added products starting from production in the upstream areas. It hoped that the company’s quality steel products can compete well, with a record that a healthy steel trading climate can be created in the domestic market.

Written by Staff Editor, Email: theinsiderstories@gmail.com