Krakatau Steel restructures record $2 billion debt to stave off bankruptcy

Posted on 05 February 2020
 

Source: The Jakarta Post

State-owned steelmaker Krakatau Steel has received approval from its creditors to restructure its loans totaling US$2 billion (Rp 27 trillion) by, among other changes, rescheduling repayment to 2027 in order to be able to revive its business.

Krakatau Steel president director Silmy Karim said in Jakarta on Tuesday that the debt restructuring would cut interest payments to $466 million from $847 million and cut costs by around $685 until 2027.

“Today, we have delivered on one of the minister’s key performance indicators,” boasted Silmy, referring to State-Owned Enterprises (SOE) Minister Erick Thohir’s promise to improve Krakatau Steel’s finances within his first 100 days in office.

The reorganization could save the country’s largest steelmaker from bankruptcy.

The debt restructuring agreements with 10 local and foreign banks were signed in stages from Sept. 30, 2019, to Jan.12.

The creditors are Bank Mandiri with total loans of $618.29 million, Bank Negara Indonesia (BNI) with $425.92 million, Bank Rakyat Indonesia (BRI) with $337.39 million, ICBC Indonesia with 44.27 million, Exim Bank (LPEI) with $79.83 million, Bank Central Asia (BCA) with $48.69 million, Bank DBS Indonesia with $48.62 million, Bank OCBC NISP with $138.66 million, Standard Chartered Bank with $25.62 million and CIMB Niaga with loans of $238.34 million.

Erick called the move “the largest debt restructuring in Indonesian history” after mistakenly citing the figure of Rp 40 trillion ($2.9 billion) on Tuesday morning instead of the supposed Rp 27 trillion or $2 billion.

He later clarified, saying the earlier figure had also accounted for the company's subsidiary restructuring.

Erick acknowledged Krakatau Steel’s efforts to handle its liabilities but warned that the move alone would not solve the company’s longstanding problems.

“I don’t want this to be merely labeled as the largest loan restructuring in Indonesian history. But what’s next?” Erick asked. “After the restructuring, the operational activities should be proper, don’t let there be any problems later on.”

Responding to the prompt, Silmy of Krakatau Steel said the company would scrutinize its subsidiaries to determine their profitability. He also assured the minister that it would optimize operations and focus on steel-related business ventures going forward.

As part of the restructuring, Slimy said the company would transfer about 2,000 employees to its subsidiaries to make the company more efficient and productive. It initially led people to believe that the company would lay off thousands of employees, which the company quickly denied.

Up until the third quarter of 2019, the steelmaker’s losses increased by 572 percent year-on-year (yoy) to nearly $212 million from about $37 million in the equivalent period of 2018.

The company's revenue over the same nine-month period slumped 17.5 percent yoy to around $1.05 billion.

Then-vice president Jusuf Kalla said in July 2019 that outdated technology and management problems meant local steel producers were unable to compete with their Chinese rivals, which could sell their products in the Indonesian market at lower prices.

The Indonesian Iron and Steel Industry Association (IISIA) has expressed concern over the influx of imported steel and urged the government to issue a trade policy to protect the local steel industry from cheaper imported products.

Imports of iron and steel continue to increase from year to year. According to Statistics Indonesia (BPS), steel imports increased by 6.7 percent to 6.3 million tons in 2018. During the year, iron and steel were the third-largest import product with an import value of $10.25 billion, or 6.45 percent of the country’s total imports.

Iron and steel imports totaled 5 million tons in the January-September period and were estimated reach 6.7 million tons for the full year of 2019, which would mark an increase of 7.5 percent from the preceding year and cost an estimated $7.63 billion.

In addition to the influx of Chinese steel, suspected bribery related to project procurement also rocked the state-owned steelmaker, allegedly involving the company's former production and technology director, Wisnu Kuncoro, and three other executives. 



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