PT Krakatau Steel Tbk (IDX: KRAS), plans to increase capital through a rights issue mechanism in this fourth quarter (4Q) of 2019. - Photo by the Company

JAKARTA (TheInsiderStories) – In the midst of mounting debt, Indonesian state-owned steel producer, PT Krakatau Steel Tbk (IDX: KRAS), plans to increase capital through a rights issue mechanism in this fourth quarter (4Q) of 2019. The funds use for debt refinancing and business restructuring.

Based on the company data, Krakatau Steel’ total debt is currently around US$2 billion. The short-term debt worth of $1.59 billion while the long-term debt of KRAS is $899.43 million.

The company‘ CEO Silmy Karim explained on Friday (07/19), at this time his party in a process to get permit from the Parliament on the Preemptive Rights in the amount of 10 percent of the company’ issued and paid up capital. However, he deny to give further details on the plan.

Now, the company still sees the right timing, given the large debt burden, with all the company’ internal problems. Moreover, Krakatau Steel also has difficulty finding new investors amid mounting of the corporate debt.

“The focus is now on debt and business restructuring, how we can optimize our subsidiaries. The fastest is in the fourth quarter of this year,” he said last week.

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

He detailed, at least there are three business lines of the units that are ready to spin-off, such as iron still making, long product, hot strip mill, and rolling mill.

Recently, the state-owned enterprise is still reviewing which companies are suitable and able to provide the best value. Meanwhile, the target value is around US$1 billion. Its estimated that the divestment of the subsidiary’ shares will only be implemented in 2023.

Last April, the company announced to issue a 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 the Indonesian steel producer’ effort to enter downstream business and to reduce the production costs.

Karim stated, 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.

“The Blast Furnace facility is a coal-based technology. So it will increase the flexibility of energy use and reduce dependence on natural gas, which is projected to experience an increasing price in the future,” said Karim.

In the Blast Furnace complex, KRAS has 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 a support, there is a Raw Material Handling that can accommodate 400,000 tons per year.

Another project, an addition of 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 complete 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.

Until September 2018 (9M), Krakatau Steel has a 40 percent of HRC market share of total national output. At the same period, steel maker’s sales recorded 1.59 million tons, up 14.24 percent compared to previous year 1.39 million tons.

The Southeast Asia’s largest economy, is expecting size-able demand for steel followed the development of infrastructure projects, shipbuilding and the automotive industry in the coming years.

Domestic steel consumption is expected to surge by between 6 per cent and 9 per cent this year from initially around 10 million tons a year, according the Indonesian Iron and Steel Industry Association.

At present, the country imports between 35 percent and 40 percent of the total annual demand for steel due to limited capacity in the local industry.

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