Krakatau Steel could go bankrupt by year-end if the several steps being taken to restructure the Indonesian state-owned enterprise’s debt fail, says Minister of Stated Owned Enterprises (SOE) Erick Thohir.

“Krakatau Steel must take three steps [to restructure], but the third step [blast furnace investment] is still deadlocked,” Thohir observes. “In addition, negotiations with Posco, one of the two reorganising firms, were also critical but not easy. If the two parties fail to reach an agreement three times in a row, the company faces bankruptcy.”

Thohir reveals that Krakatau was in negotiations with Chinese partners, but was put off by the excessive investment required, including to repair blast furnaces. In negotiations with Posco, the Indonesian government requires equity to be split equally, but Posco has not given any response to this proposal.

The South Korean steelmaker planned to invest $3.7 billion into Krakatau in two phases for the production of hot rolled coil, and new iron and steel production facilities (see Kallanish passim).

Krakatau Steel also made a plan to sell 40% of PT Krakatau Sarana Infrastruktur, its wholly-owned subsidiary, to repay debts. It would thus retain its status as a major shareholder after the transaction. However, it could also increase the share sale to 70%.

In addition, Thohir has encouraged the Indonesia Investment Authority, the so-called LPI, to invest in Krakatau Steel.