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 producer, PT Krakatau Steel Tbk (KRAS) plans to issue Mandatory Convertible Bond (MCB) with total amount Rp3 trillion (US$204.08 million), said the management on Thursday (10/15). The notes have seven years tenure.

These MCB will be converted into new shares of the company through private placement mechanism aims to improve the company’ financial condition. The bond would be converted into company shares with a conversion price referring to 90 percent of the average closing price within 25 exchange days on the regular market, or one day before the conversion date.

The issuance is part of the government to injects capital to Krakatau SteelBased on prospectus, the transaction will refer to the government investment scheme in the context of National Economic Recovery program, which was agreed on Oct. 6, 2020. 

In this corporate action, acting as the publisher the manufacturer. While, the investor is the government, in this case finance minister through state financial firm, PT Sarana Multi Infrastruktur. The coupon value is the same as the reverse repo rate. If the interest coverage ratio is less than 1, the coupon value is zero percent.

The management of Krakatau Steel also emphasized that government funding support for the upstream industry will be very useful to maintain production and business activities in the downstream sector, which will have a large enough impact and will increase production demand and affect the use of supplies from the upstream sector.

Since last year, the company plans to finalize the debt restructuring of $2.2 billion. The issuer has to negotiate with four banks before accomplish the restructuring. The CEO, Silmy Karim,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.

So far, the manufacturer and its units has signed the agreement of restructuring with six financial institutions consists of PT Bank Mandiri Tbk (IDX: BMRI), PT Bank Negara Indonesia Tbk (IDX: BBNI), PT Bank Rakyat Indonesia Tbk (IDX: BBRI), PT Bank ICBC Indonesia, Lembaga Pembiayaan Ekspor Indonesia (Indonesia Eximbank), dan PT Bank Central Asia Tbk (IDX: BBCA).

In the agreement, the producer 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, Krakatau Steel 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.

While, the company 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. Karim 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. In addition, the issuer has realized the cooperation with PT Lotte Chemical Titan Tbk (IDX: FPNI) to build the petrochemical plant on 60 hectares of its land.

The project has been stalled for around three years, due to land conflict. By the official cooperation, the South Korea company will invest $820 million to the project next year. While the total investment will reach $4.2 billion.

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’ quality steel products can compete well, with a record that a healthy steel trading climate can be created in the domestic market.

US$1: Rp14,700

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