Krakatau Posco (KRKPSC)

PT Krakatau Posco (“Krakatau Posco”) is a steel issuer that operates an integrated blast-furnace steel mill in Cilegon, Banten Province, Indonesia. The credit conclusion is that the bonds should be viewed not as “debt of an Indonesian state-owned steel company,” but as “debt of an Indonesia-based integrated blast-furnace steel JV with high strategic importance to the POSCO Group.” As of end-2024, the shareholder structure was POSCO 50% and PT Krakatau Steel (Persero) Tbk 50%, with POSCO Holdings Inc. as the ultimate parent. Krakatau Steel is a listed steel company with an Indonesian state-owned character, but it would be inappropriate to equate the creditworthiness of Krakatau Posco’s bonds with an Indonesian government guarantee or state-owned enterprise debt. Rather, the assessment needs to center on S&P’s BBB- rating, the US dollar-denominated senior unsecured bonds issued in June 2024, the support agreement with POSCO, and the company’s positioning within the POSCO Group’s overseas steel strategy.

The basic view in this report is to treat Krakatau Posco as a lower-investment-grade crossover steel credit. From a business perspective, the company is Indonesia’s first integrated blast-furnace steel mill, with capacity on the scale of 3 million tons per year, and supplies slabs, plate, and hot-rolled products. Its credit quality is supported by Indonesian domestic steel demand, demand from shipbuilding, construction, manufacturing, and infrastructure, POSCO’s operating know-how, and the Cilegon steel cluster. At the same time, constraints include the steel market cycle, coking coal and iron ore prices, competition with imported steel, rupiah/US dollar/won foreign exchange movements, plant utilization, refinancing, and the effectiveness of shareholder support. Integrated blast-furnace steelmaking can have scale and cost competitiveness, but in periods of weak demand, fixed costs and working-capital burdens become more pronounced.

The most significant recent credit development was the company’s issuance of USD700mn of global bonds in June 2024 and its refinancing of existing borrowings. According to the 2024 financial statements, the company issued USD300mn of three-year bonds and USD400mn of five-year bonds on June 11, 2024, both with a 6.375% coupon, listed on the Singapore Exchange, and carrying an S&P bond rating of BBB- . The financial statements state that these bonds are subject to a support agreement entered into between Krakatau Posco and POSCO on April 9, 2024. This is the most important structural issue for bond investors. It is necessary to confirm the specific contract terms to determine whether the support agreement is equivalent to an explicit parent guarantee, closer to a keepwell arrangement, or limited in scope to liquidity support.