PT Krakatau Steel Tbk (IDX: KRAS) will use three schemes to restructure the company' loans - Photo by the Company

JAKARTA (TheInsiderStories) – Indonesian steelmaker, PT Krakatau Steel Tbk (IDX: KRAS) will complete the debt restructuring process worth US$2.2 billion early next week, the company said today (09/27), in line with the signing of the debt restructuring agreement with the creditors.

“The company will sign a debt restructuring agreement with creditors on September 30. This was decided after a meeting with creditors on Thursday,” its president director Slimy Karim told Bisnis without specifying the debt restructuring scheme in the agreement.

However, Karim previously said will use three schemes to restructure the company’ loans. The payment schemes use cash, divestment program and issue a convertible bond.

Currently, there are 10 banks acting as creditors for Krakatau Steel. The ten banks are PT Bank Mandiri Tbk (IDX: BMRI), PT Bank Negara Indonesia Tbk (IDX: BBNI), PT Bank Rakyat Indonesia Tbk (IDX: BBRI), PT Bank CIMB Niaga Tbk (IDX: BNGA), PT Bank OCBC NISP Tbk (IDX: NISP), PT Bank DBS Indonesia, PT Bank Central Asia Tbk (IDX: BBCA), PT Bank Danamon Indonesia Tbk (IDX: BDMN), Indonesia Eximbank, and Standard Chartered Bank.

Director at Bank Mandiri, Royke Tumilaar explained the state-owned bank was the biggest creditor for Krakatau Steel with values around Rp8 trillion ($571.42 million) followed by Bank Negara Indonesia worth of Rp5 trillion.

He said, through Tranche A scheme, KRAS will pay the loans using a cash flow in 8 to 10 years period. Tranche B through a divestment it’s subsidiary’ share in three years time. Krakatau Steel will pay half of the total loan with the worth of $1 billion using this scheme.

Then, Tranche C using a convertible bond. This scheme has the longest tenure because there are extended options in the proposed program. In addition, Krakatau Steel and its creditors also changed the agreement that was once the master restructuring agreement to an ordinary credit agreement.

Earlier, Karim said that Krakatau Steel had a chance to spin off separate subsidiaries. The strategy was carried out as part of the steel producer’ debt restructuring. Its also being carried out with the aim that its unit is more efficient and increase productivity. It’s targeted the spin-off will be executed in the next two months.

In details, added by Karim, at least there are three business lines of the units that are ready to the spin-off, such as iron still making, long product, hot strip mill, and rolling mill. It’s estimated that the divestment of the subsidiary’ shares will be implemented until 2023.

While, in last April, the company announced to issue convertible bonds that have conversion options of around $1 billion with a five-year tenor and can be extended to 10 years.

This year, Krakatau Steel planned to run two strategic projects, as part of the steel producer’ effort to enter the downstream business and to reduce the production costs.

Karim revealed, that the first project is the Blast Furnace Complex in the area of 55 hectares joined with Capital Engineering & Research Incorporation Ltd., from China and its unit PT Krakatau Engineering. He said, with the new plant, steel production costs will decrease by $50 per ton.

In the Blast Furnace Complex, KRAS has to build Sinter Plant with a capacity 1.7 million tons per year, Hot Metal Treatment Plant with a capacity of 1.2 million tons per annum, and Coke Oven Plant with a capacity of 555 thousand tons in a year. As support, there is a Raw Material Handling that can accommodate 400,000 tons per year, he adds.

In addition, a hot sheet steel capacity to supply Hot Rolled Coil (HRC) with a capacity of 1.5 million tons per annum and is targeted to be completed in April 2019. Karim said HRC managed to record a sales volume in November 2018 which amount 189,702 tons from previous month 127,005 tons.

Throughout the first semester (1H) of 2019, the company’ revenue fell 17.82 percent to Rp9.83 trillion from 1H of 2018 worth of Rp 11.96 trillion. The main cause was a significant reduction in steel sales in the domestic market, from $731.37 million to $523.79 million.

US$1=Rp14,000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com