KS diverts IPO funds to build new steel plant

IDX-listed steel producer PT Krakatau Steel (KS) will divert the remaining proceeds from its initial public offering (IPO) in 2010 to build a new hot-strip mill as opposed to expanding the existing one, as initially planned, The Jakarta Post reported on Friday.

KS President Director Irvan Kamal Hakim said that a general shareholders? meeting, held on Thursday, had approved the company?s proposal to use US$105.6 million of the IPO?s proceeds to finance the construction of the new mill. The funds, 36 percent of the Rp 2.59 trillion raised by the company during the IPO, had initially been allocated to upgrade and modernize the company?s existing plant.

Irvan did not provide many details about the proposed plant, saying only that the firm was currently preparing the tender for the plant?s construction.

?We have yet to disclose a definite figure for the investment, but our feasibility study shows that we will probably need about $481 million. The initial production capacity will be about 1.5 million tons of steel per year, increasing to about 3 million tons per year with an additional 30 percent of investment;? he explained.

According Krakatau?s IPO prospectus in 2010, a portion of the IPO?s proceeds was to be used to boost production at its existing plant to 1.1 million tons of steel per year, or 45.83 percent higher than the company?s total steel output at the time.

The company aims to see its total production double to 7.15 million tons of steel per year in 2018. The additional output is expected to come from both the company?s subsidiaries and joint ventures with other firms.

The firm?s latest addition, the Krakatau-Posco steel mill in Cilegon, Banten, which absorbed $2.66 billion in investment, has a production capacity of 3 million tons of steel per year.

The company?s current steel output stands at 3.15 million tons per year, beyond additional output from Krakatau-Posco.

Krakatau posted a net loss of $13.9 million in 2013, despite an increase in sales compared to the previous year, due to stagnant steel prices and the depreciation of the rupiah against the US dollar.

With the 2013 results, the company has now booked net losses two years in a row after a loss of $20.4 million in 2012. (*)