Indonesia’s Krakatau Steel Savings Interest Cost US$466M from Debt Restructuring

Indonesian steel producer, PT Krakatau Steel Tbk (IDX: KRAS) saving interest costs US$466 million after completed the debt restructuring with total amount $2.2 billion, said the CEO today (01/28) - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) –  Indonesian steel producer, PT Krakatau Steel Tbk (IDX: KRAS) saving interest costs US$466 million after completed the debt restructuring with total amount $2.2 billion, said the CEO today (01/28). The creditors has been agreed to extend the debt until 2027 from earlier 2019.

The debt refinancing has been signed on Jan. 2, 2020.

“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,” the CEO, Silmy Karim, told reporters at public expose in Jakarta, today.

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, KRAS has a payment relaxation to lower cost financing. But, KRAS 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.

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.

Meanwhile, the company finally realized the cooperation with PT Lotte Chemical Titan Tbk (IDX: FPNI) to build the petrochemical plant on 60 ha of KRAS 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.

Earlier, Karim said KRAS had a chance to spin off separate subsidiaries. The strategy was carried out as part of the steel producer’s debt restructuring. It is also being carried out so its unit is more efficient and higher productivity.

In detail, he went on, at least there are three business lines of the units that are ready for the spin-off, such as iron still making, long product, hot strip mill, and rolling mill. It is estimated that the divestment of the subsidiary’ shares will be implemented until 2023.

In September, the company 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.

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