PT PP Tbk (IDX: PTPP) prepares Rp800 billion (US$56.73 million) to acquire a subsidiary of PT Krakatau Steel Tbk (IDX: KRAS), PT Krakatau Tirta Industri (KTI) - Photo by the Company

JAKARTA (TheInsiderStories) – Indonesia’ construction firm, PT PP Tbk (IDX: PTPP) prepares Rp800 billion (US$56.73 million) to acquire PT Krakatau Tirta Industri (KTI), unit of PT Krakatau Steel Tbk (IDX: KRAS), PTPP’ president director Lukman Hidayat told media on Thursday (10/03).

Hidayat said that his party is in negotiations with Krakatau Steel‘s president director Silmy Karim regarding the acquisition. So, the company cannot explain the valuation of KTI shares.

“The counting process has not yet been completed and is still in the negotiation stage,” he said.

With the acquisition of KTI, PTPP hopes to become the largest drinking water provider in Indonesia. This is in line with KTI’s business which focuses on providing clean water and wastewater treatment services.

The acquisition will also add PTPP’s business entity in the field of clean water management. Currently, PTPP has four subsidiaries that are engaged in clean water management. The four subsidiaries are PT Widya Tirta Selaras in Jakarta, PT Tirta Tangsel Mandiri in Tangerang, PT Ultra Mandiri Telekomunikasi in East Jakarta, and PT PP Krakatau Tirta in East Jakarta.

“We want to take over Krakatau Tirta Industri so that we can become leaders in clean water management,” he said.

PTPP’s finance director Agus Purbianto had admitted that the two were currently negotiating on majority ownership. PTPP wants to have a majority stake in KTI in order to provide good added value.

Meanwhile, Krakatau Steel started an operational support unit to provide clean water in 1978. On Feb. 28, 1996, the unit became KTI. Raw water taken from the Cidanau River comes from the natural lake Rawa Dano in Cilegon, Banten. The capacity of electricity installed in the Krenceng Water Treatment Unit is 2,000 liters per second.

CEO of Krakatau Steel Silmy Karim said, the company divested its non-core assets as part of the company restructuring plans and seeks the funds $1 billion for debt repayment. Beside KTI, he added, the company also offered PT Krakatau Bandar Samudera (KBS) and PT Krakatau Daya Listrik (KDL) shares. KDL, The power electricity company, which has been operating since 1996, has five unit power plants with a total installed capacity of 400 megawatts.

As of June, KDL’s asset value worth $230.57 million and one of the company’s subsidiaries that have recorded profits during the first half of this year. Beside manage power plants, KDL also becomes a gas seller partnering with state-owned gas producer, PT Perusahaan Gas Negara Tbk (IDX: PGAS).

Krakatau Steel also considered releasing other assets, such as hospitals, hotels, industrial land to streamline more than 50 business entities under the group. The company expected all the plans to be carried out in the fourth quarter of 2019.

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

In the Blast Furnace complex, KRAS has to build a Sinter Plant with a capacity of 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.

Another project is an addition of hot sheet steel capacity to supply Hot Rolled Coil (HRC) with a capacity of 1.5 million tons per annum. Karim said HRC managed to record a sales volume in November 2018 which amounted to 189,702 tons from the previous month 127,005 tons.

Throughout the first half (1H) of 2019, the company’s revenue fell 17.82 percent to Rp9.83 trillion from 1H of 2018 worth of Rp11.96 trillion. The main cause was a significant reduction of steel sales in the domestic market, from $731.37 million to $523.79 million. In addition, the acquisition from the construction engineering business line also dropped 30.86 percent to $13.15 million.

US$1=Rp14,100

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