Indonesia says sees strategic sale for Krakatau Steel

By Yayat Supriatna

JAKARTA, May 15 (Reuters) - Indonesia is looking for a strategic investor for state-owned PT Krakatau Steel and will invite South Korea's POSCO (005490.KS: Quote, Profile, Research), the world's number four steelmaker, to take a stake, a senior official said on Thursday.

Krakatau Steel, Indonesia's biggest steel firm with assets worth an estimated 11 trillion rupiah ($1.18 billion), is one of 37 state firms slated for privatisation to help fund a widening budget deficit.

While the government has considered an initial public offering (IPO) for the Java-based steel firm, the head of the country's investment board said that it would be better to find a strategic investor who could help it to expand.

"Strategic sales are more suitable to double the company's capacity. Besides, conditions are not so favourable for IPOs," M. Lutfi, chairman of the state investment agency, told reporters.

"The steel industry is very competitive, which forces us to strike an alliance with global steel players."

Several potential strategic investors have already expressed an interest in Krakatau Steel, including ArcelorMittal (ISPA.AS: Quote, Profile, Research) (MT.N: Quote, Profile, Research), the world's largest steelmaker, and BlueScope Steel Ltd (BSL.AX: Quote, Profile, Research), Australia's largest steelmaker.

The agency is also inviting POSCO, the world's second-largest steelmaker by value, to participate in the privatisation of Krakatau Steel, Lutfi said.

"The more participants, the better," he said.