Indonesia's Krakatau Steel sees 2010 profit growth of 40-60pct

Indonesia's state-owned steel-maker PT Krakatau Steel, which is eyeing a $400m IPO in November, expects net profit growth of 40-60 per cent this year thanks to higher steel prices and improved efficiency.

"We are optimistic that we can achieve 700-800bn rupiah ($78-$89m)" in net profit in 2010, said Fazwar Bujang, president director of Krakatau Steel, up from nearly 500 billion in 2009.

Speaking on the sidelines of an investor forum in Singapore, he said the company expects revenue of 20 trillion rupiah in 2010, up from about 17trn rupiah in 2009.

The Indonesian government plans to sell a 30 percent stake in Krakatau Steel for about 3.5trn rupiah through an initial public offering in November.

Proceeds from the offering will be used to upgrade the ageing plants of the country's largest steel producer and increase its annual productions to as much as 4.2 million tonnes by the end of 2013.

Indonesia's state enterprises ministry is holding a non-deal road show in Singapore and Hong Kong this week to meet investors ahead of the planned privatisation of key assets this year.

Investor appetite for stocks and bonds in Southeast Asia's biggest economy has been particularly strong over the past year thanks to a combination of accelerating growth, relatively low inflation, political stability, and prospects for an investment grade credit rating.

Bujang said investors were interested in Krakatau Steel's IPO "because of Indonesia's economic growth prospects and the low per capita steel consumption."

"The average per capita steel consumption in Indonesia is only 32 kilograms, the global average is nearly 200 kilogrammes. But if you look at China, the number is close to 500 kilograms per capita, so there is a lot of room for growth," Bujang said.

Bujang also said that the final joint venture agreement with South Korea's Posco for a $5.4bn steel project could be signed as early as May.

Posco will have a majority stake possibly of about 55 percent in the joint venture company, which will have a total production capacity of 6 million tonnes per year.

The project will be divided into two phases with construction of the first phase due for completion by the end of 2013. That will start production in early 2014 with 3 million tonnes of annual capacity and will cost $2.7bn.