Indonesia plans privatisations this year

Garuda and Krakatau Steel will be the first of Indonesia's many SOEs to raise cash in the equity market this year, deputy minister Parikesit Suprapto tells a Hong Kong audience.

Indonesia's plan to sell stakes in two major state-owned enterprises (SOEs) is on track, according to Parikesit Suprapto, deputy minister of SOEs for financial institutions.

Garuda's long-awaited initial public offering is likely to be launched in the third quarter, and could raise up to $400 million. The national airline has recently reached an agreement to restructure its debts with the European Credit Agency, which is its biggest creditor.

The government also intends to sell a 30% stake in Krakatau Steel in November to raise a similar amount. Last year, the company signed a preliminary agreement with Korea's Pohang Iron & Steel to build a new steel plant at Krakatau's industrial complex in Cilegon, West Java.

Suprapto was addressing investors at a lunch arranged by Credit Suisse in Hong Kong this week. Also in the audience were senior executives from 10 Indonesian SOEs, including Bank Mandiri, Telekomunikasi Indonesia and Bank Rakyat Indonesia RI.

Suprapto outlined "four key strategic initiatives" for the country's 141 SOEs: transforming their working culture by accessing the international capital markets; restructuring by forming sector holding companies; privatisation following initial capital raising efforts; and "strategic development" through "going international".

Indonesia's SOEs should be "world class corporations", he said. Implementation of these initiatives would lead to improvements in "profitability, accountability and transparency".   

He also envisages a bigger role for SOEs as "instruments for national welfare based on corporate priorities". They should set an example by improving management quality, strengthening their succession planning, providing incentive-driven compensation structures and by setting clear goals which are regularly evaluated, he said.

Aggregate revenues for the government-owned companies were Rp930 trillion ($100 billion) in 2009 -- equivalent to 17% of the country's GDP. They also contributed 12% of the state budget, and have a "multiplier effect on the rest of the economy", said Suprapto. In the future, the government hopes to rely more on dividend payments as the privatisation programme gets underway.

Even now, SOEs make up 32% of the Indonesia Stock Exchange, and their shares are widely held by global fund managers. The benchmark Jakarta Composite Index hit an all-time high earlier this month and is up 15.5% this year, which makes Indonesia the best performer among the Asian markets.

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