Issuer Summary: PT Krakatau Posco

Date prepared: 2026-05-07

1. Credit View and Monitoring Focus

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.

On a standalone basis, debt is heavy relative to revenue scale, but operating earnings recovered in 2025. In the audited 2024 financials, the company reported revenue of USD2.067bn, operating profit of USD12.1mn based on POSCO’s data pack, operating cash flow of USD249mn, and period-end cash of USD17.76mn. Operating profit in 2024 fell sharply from USD177mn in 2023, demonstrating sensitivity to weaker steel market conditions and slower demand. However, POSCO’s 4Q 2025 data pack showed 2025 revenue of USD1.848bn and operating profit of USD67mn for Krakatau Posco, indicating improvement from the low earnings level in 2024. For 1Q 2026 as well, POSCO explained that profitability improved due to increased exports to Europe and cost reductions, despite seasonal effects from Ramadan and Lebaran.

For investors, the most accurate characterization is that Krakatau Posco is an issuer that reaches investment grade through parent support, but on a standalone basis remains heavily exposed to the steel cycle and a high debt burden. At end-2024, total assets were approximately USD3.143bn, fixed assets approximately USD2.059bn, bank borrowings approximately USD1.306bn, bonds approximately USD694mn, and lease liabilities approximately USD212mn. Short-term bank borrowings and borrowings maturing in 2025 are substantial, and the 2024 bond issuance contributed to smoothing the maturity profile, but liquidity cannot be described as particularly strong based on cash alone. In substance, liquidity is supported by relationships with the banking syndicate, Korean financial institutions, POSCO, and market access.

Accordingly, the appeal of Krakatau Posco’s bonds is that they provide exposure to Indonesia’s long-term steel demand and the POSCO Group’s overseas steel investment, while offering a coupon that is appropriately high for a lower-investment-grade issuer. The main constraints are the issuer’s thin standalone margins, small cash balance, large total debt, and the need to review the legal strength of parent support in the contract before accurately judging recovery capacity. The credit is different in character from Indonesian government-related benchmarks such as PLN or Pertamina, and it is also different from POSCO parent bonds. Ultimately, this is an issuer that should be assessed by looking simultaneously at the recovery of the standalone steel business, completion of refinancing in 2025-2026, the effectiveness of the support agreement, S&P’s view, and the rating headroom of POSCO Holdings.

2. Business Snapshot: What is Krakatau Posco?

Krakatau Posco is an integrated blast-furnace steel company located in Cilegon, Indonesia. According to the official website, the company was established in 2010 as a joint venture between PT Krakatau Steel and Korea’s POSCO, began construction in 2011, and completed Indonesia’s first integrated steel mill using blast-furnace technology in approximately 36 months. Commercial production began in 2014. Its products are mainly slabs, plate, and hot-rolled steel sheet, which are used in domestic shipbuilding, infrastructure, pipelines, pressure vessels, construction, and manufacturing.

The first point to establish in credit analysis is that Krakatau Posco is not a quasi-sovereign like an Indonesian government policy financial institution or electric utility. Krakatau Steel is an Indonesian listed steel company with a state-owned character and is a 50% shareholder of Krakatau Posco. However, Krakatau Posco itself was established as a foreign investment JV, and its 2024 financial statements state that POSCO owns 50%, Krakatau Steel owns the remaining 50%, POSCO is the controlling shareholder, and POSCO Holdings is the ultimate parent. Therefore, the first support channel bondholders should examine is not the Indonesian government, but POSCO and the company’s strategic importance within the POSCO Group.

The core of the business is an integrated flow covering blast furnace, steelmaking, continuous casting, plate, and hot rolling. Official company materials and industry sources indicate capacity on the scale of 3 million tons per year, with slab, plate, and hot-rolled coil capacity each generally described as being around 1.5 million tons. This represents significant supply capacity relative to Indonesian domestic steel demand and is a modern integrated blast-furnace facility distinct from the historical facilities of Krakatau Steel on a standalone basis. Because it is asset-intensive, profitability is heavily affected by utilization rates, raw-material procurement, energy efficiency, maintenance, logistics, and export sales.

In one sentence, Krakatau Posco can be defined as “one of Indonesia’s largest integrated steel JVs, combining POSCO’s technology, operations, and capital-market access with Krakatau Steel’s domestic industrial base and Cilegon location.” This company profile has two implications for credit quality. First, the standalone asset value and market position are substantial, and the company is not merely a small rolling mill. Second, because the assets are heavy and the company is exposed to imported raw materials and market conditions, earnings volatility and refinancing risk are unavoidable for it as an independent issuer. In other words, Krakatau Posco is not “safe because it is large”; rather, it is an issuer that is more likely to receive support because of its scale and strategic character, but still carries heavy standalone steel risk.

3. What Changed Recently

The most important recent event was Krakatau Posco’s issuance of USD700mn of global bonds from late May to June 2024. The POSCO Group Newsroom announced that the company issued a dual-tranche transaction on May 30, 2024, consisting of USD300mn of three-year bonds and USD400mn of five-year bonds, both with a 6.375% coupon, and that the proceeds would be used to repay existing debt. The 2024 financial statements also show that the company issued the same amount of senior bonds on June 11, 2024, listed them on the Singapore Exchange, obtained an S&P bond rating of BBB-, and would use the proceeds for refinancing existing debt and general corporate purposes.

This bond issuance significantly changed Krakatau Posco’s credit profile. Previously, the company had relied heavily on senior facilities centered on the Korea Export-Import Bank, additional facilities, syndicated bank loans, and short-term working-capital loans. The 2024 global bond issuance gave the company access to the public bond market, with maturities distributed across 2027 and 2029. This is positive in the sense that it reduces dependence on short-term banks, broadens the investor base, and improves market recognition through an S&P rating. At the same time, the issuer’s dependence on capital markets has also increased. Investors need to monitor how much the company can improve standalone earnings and cash flow by 2027, and how it manages maturities including the 2029 bonds.

Financially, 2024 was a difficult year. Revenue was USD2.067bn, down from USD2.397bn in 2023. POSCO’s overseas steel data show that Krakatau Posco’s operating profit declined sharply from USD177mn in 2023 to USD12.1mn in 2024. POSCO explained that, for Krakatau Posco in 2024, the company worked on cost optimization, including use of lower-cost coking coal and improvement in blast-furnace burden mix, despite market slowdown. In other words, the issue in 2024 was not simply operational failure, but pressure on margins at a large blast-furnace facility from weak steel market conditions and the demand environment.

A degree of recovery is visible in 2025. POSCO’s 4Q 2025 data pack shows 2025 revenue of USD1.848bn and operating profit of USD67mn for Krakatau Posco. Revenue declined further, but operating profit improved from 2024. This suggests that not only volume and selling prices, but also raw-material costs, product mix, exports, and operational efficiency may have contributed to the improvement. POSCO materials for 1Q 2026 also state that Krakatau Posco increased exports to Europe and continued cost reductions despite seasonal effects from Indonesia’s Ramadan and Lebaran holidays. This is positive, but the company has not returned to the high earnings level of 2023.

There have also been changes in the shareholder and support structure. The 2024 financial statements state that the shareholder structure is POSCO 50% and Krakatau Steel 50%, with POSCO identified as the controlling shareholder. Past reports often described the structure as POSCO 70% and Krakatau Steel 30%, but the official financial statements as of end-2024 show 50:50. This is important for analysis. POSCO control should not be explained using old 70:30 information; rather, the assessment should be based on the current control, contracts, and support agreement. Even under a 50:50 structure, because the financial statements explicitly identify POSCO as the controlling shareholder, POSCO remains the central focus of the support analysis.

In the macro and rating environment, both the POSCO parent and Indonesia location risk need to be assessed. POSCO Holdings’ earnings softened in 2025, but operating profit in POSCO’s standalone steel business improved, while the group moved forward with overseas steel investments and the disposal of low-profitability assets. In Indonesia, S&P maintained the sovereign rating at BBB / Stable in July 2025, while Fitch revised the outlook to BBB / Negative in March 2026. Krakatau Posco is not a government-related issuer, but it is affected by operating, legal/regulatory, foreign-exchange, and country risks.

4. Industry Position and Franchise Strength

Krakatau Posco’s industry position should be assessed across three dimensions: domestic supply capacity in Indonesia, importance as an overseas steel base within the POSCO Group, and positioning within the Cilegon steel cluster. Indonesia is a market with demand from population growth, infrastructure investment, construction, manufacturing, resource processing, shipbuilding, and energy-related equipment, while domestic steel supply and competition from imported steel coexist. Because Krakatau Posco has integrated blast-furnace facilities, its supply capacity and cost base are stronger than those of a mere rerolling or secondary processing company. However, when the domestic market is weak, it needs to maintain utilization through exports, where it is exposed to broad regional competition from China, Korea, Japan, ASEAN, India, and others.

The first franchise strength is the integrated nature of the facilities. The flow from blast furnace to steelmaking, continuous casting, plate, and hot rolling provides scope for product quality, scale, cost control, raw-material mix optimization, and operational improvement. The incorporation of POSCO’s technology and operations distinguishes the company from independent small steel producers. The fact that POSCO materials referred to the use of lower-cost coking coal and improvement in blast-furnace burden mix even after the sharp fall in operating profit in 2024 indicates that operational improvement is an important practical lever.

The second strength is alignment with domestic industrial policy. Indonesia emphasizes downstreaming of mineral resources, infrastructure development, and manufacturing development, and steel is a foundational material for these priorities. As Indonesia’s first integrated blast-furnace steel mill, Krakatau Posco contributes to the upgrading of domestic steel supply. This is positive in terms of policy importance, but it is not synonymous with a government guarantee or direct support. Rather, because the company belongs to a policy-important industry, its earnings should be seen as relatively sensitive to import restrictions, protective measures, energy policy, port and logistics policy, and environmental regulation.

The third strength is strategic importance within the POSCO Group. POSCO Newsroom described the 2024 global bond issuance as the first case in which a POSCO Group company other than POSCO itself issued a global public bond based on its own rating. It also stated that investors recognized the company’s stable profitability and strategic importance within the group. POSCO’s 2025 management policy also mentions overseas steel JVs and a “complete localization strategy.” This indicates that Krakatau Posco is viewed not merely as a financial investment, but as part of POSCO’s Southeast Asian steel supply and localization strategy.

However, franchise strength does not guarantee earnings stability. The sharp decline in operating profit in 2024 showed that even a company with strong assets and shareholders is vulnerable to deterioration in steel market conditions and slower demand. Steel is a commodity-cycle industry, and the spread between selling prices and raw-material costs can change over a short period. Krakatau Posco has a meaningful presence in the Indonesian market, but it cannot determine prices based only on the Indonesian market. Imported steel, foreign exchange, protective measures, logistics costs, and capex by customer industries affect pricing power.

5. Segment Assessment

Krakatau Posco’s financial disclosures are close to a single steel products and related services business, making multi-segment analysis, as used for banks or conglomerates, difficult. For credit purposes, this report evaluates the practical segments as: ① slabs/semi-finished products, ② plate, ③ hot-rolled steel, ④ related services and energy integration, and ⑤ regional mix of exports and domestic sales. Importantly, credit relevance is not determined solely by which products generate revenue, but by how each product affects plant utilization, margins, working capital, customer base, and export potential.

Slabs and semi-finished products underpin basic mill operations. In an integrated blast-furnace steel mill, blast furnace and steelmaking utilization directly impacts fixed-cost absorption. If slabs can be sold externally or supplied within the group/related parties, overall mill operations can be maintained even when plate or hot-rolled demand is temporarily weak. However, semi-finished products offer limited differentiation and tend to track international prices. Thus, slab sales support utilization but do not guarantee high margins.

Plate is critical for shipbuilding, bridges, construction, pipelines, pressure vessels, and heavy industry. Krakatau Posco positions plate as a core product according to official materials. Plate specifications, quality, and customer certifications matter, providing potential for price maintenance above commodity levels. However, demand depends on investment cycles in shipbuilding, infrastructure, energy projects, and heavy equipment. When domestic projects are strong, margins are supported, but delays pressure inventory and utilization.

Hot-rolled steel connects to broad demand in automotive, construction, pipe, processing, and manufacturing sectors. The market is large and helps diversify sales channels, but competition from imported steel is intense. Hot-rolled pricing is strongly influenced by domestic demand, import regulations, anti-dumping measures, FX, and logistics costs. Krakatau Posco’s 2024 borrowings secured by HSM assets indicate that hot-rolling assets are key both as operational assets and as collateral for lenders, representing core value beyond production capacity.

Sales region mix is also important. In 2024, of total revenue USD2.067bn, domestic sales were USD1.481bn and exports USD586mn, i.e., roughly 70% domestic, 30% export. Domestic strength provides advantages in policy, logistics, and customer relationships, but when domestic demand weakens, exports need to be expanded. POSCO’s 1Q 2026 materials cite increased exports to Europe, suggesting exports serve as a valve for utilization and profitability. However, exports remain exposed to international prices, logistics, FX, and trade measures, and cannot ensure stable earnings.

This segment assessment indicates that Krakatau Posco’s creditworthiness depends not on the performance of a single product but on combined factors: overall mill utilization, product mix, raw-material costs, sales region mix, and borrowing terms. In 2024, revenue was large, but operating profit nearly vanished. In 2025, revenue declined, but operating profit recovered. This contrast highlights the importance of margins and operational efficiency over mere revenue.

6. Financial Profile

Krakatau Posco’s financial profile shows large revenue and positive operating cash flow, but heavy debt and fixed assets with a thin cash buffer. In audited 2024 financials, revenue was USD2.067bn, total assets USD3.143bn, fixed assets USD2.059bn, and period-end cash USD17.76mn. Operating cash flow was USD248.5mn, positive, but financing activities were significant: long-term debt repayment USD1.326bn, short-term borrowings and repayments, and bond issuance, reflecting capital-structure rebalancing as the main theme.

Profitability deteriorated sharply from 2023 to 2024. POSCO data show Krakatau Posco operating profit of USD177mn in 2023, USD12.1mn in 2024, and USD67mn in 2025. Operating margin fell to ~0.6% in 2024, illustrating how fixed costs and raw-material expenses press on earnings in a weak steel market. Margin recovered to ~3.6% in 2025, still below 2023’s ~7.4%. For a lower-investment-grade issuer, 2025 recovery is a necessary but not sufficient condition.

Note: 2023-2025 revenue and operating profit are from POSCO Holdings data pack; 2024 total assets, fixed assets, cash, borrowings, bonds, leases, and operating CF are from Krakatau Posco 2024 audited consolidated financials. Operating margin calculated in this report.

The key point is that earnings fluctuate significantly despite revenue around USD2bn. Revenue was higher in 2024 than in 2025, yet operating profit was greater in 2025. This demonstrates that Krakatau Posco’s earnings depend not only on volume/revenue but also on steel prices, raw-material costs, product mix, exports, and operational efficiency. Integrated blast-furnace assets provide cost competitiveness at high utilization, but fixed costs consume profits in weak-demand periods.

Operating cash flow of USD248.5mn in 2024 provides support. However, financing activity saw large movements: bond issuance USD694mn, short-term borrowing drawdowns/repayments, and long-term debt repayment USD1.326bn. This indicates a company whose capital structure is stabilized more through refinancing and debt rebalancing than by ordinary operating cash flow.

The balance sheet shows very large fixed assets. The audit report highlights impairment testing of USD2.059bn in fixed assets at end-2024 as a Key Audit Matter. This underscores the significance of asset value on the financial statements and its reliance on assumptions for future cash flows. If steel markets remain weak and utilization/margins stay low, impairment risk becomes material. For bondholders, fixed assets are both a source of collateral/business continuation value and a risk if impairments erode capital.

Debt levels are heavy. End-2024 bank borrowings totaled USD1.306bn (short-term USD181mn, long-term USD1.125bn), plus bonds USD694mn and lease liabilities USD212mn. Combined bank borrowings, bonds, and leases total ~USD2.212bn, very high relative to 2024 operating profit of USD12.1mn. Even with 2025 operating profit of USD67mn, leverage remains substantial on a standalone basis. Hence, S&P’s investment-grade rating should be interpreted including support, strategic importance, and refinancing track record, not just standalone leverage.

Interest burden is also a constraint. 2024 bond coupons were 6.375%, and bank borrowings carried margins from SOFR +4.66% to mid-7% range. In a period of elevated US dollar rates, Krakatau Posco’s financial costs are significant. Cash flow for financial payments in 2024 was USD131mn, far exceeding operating profit. Even with positive operating cash flow, delays in margin improvement under continued interest payments and refinancing pressure can deteriorate market perception.

7. Structural Considerations for Bondholders

The key structural questions for bondholders are: which legal entity bears the debt, which support agreements underpin it, and how does it rank relative to other assets/liabilities? This report focuses on the credit of the issuer, Krakatau Posco, and its parent/ consolidated subsidiaries. In 2024 financials, the issuer is Krakatau Posco; USD300mn 3-year and USD400mn 5-year bonds are senior, SGX-listed, and S&P-rated BBB-.

While these bonds are described as “senior unsecured,” the financial statements note they are supported by a specific “support agreement.” POSCO Newsroom explains the issuance as a global public bond based on the issuer’s rating, and S&P reportedly assigned BBB- based on Krakatau Posco’s credit. Therefore, these are not identical to direct POSCO debt. However, the support agreement with POSCO means they are not fully standalone. This intermediate character is central to relative value.

The legal strength of the support agreement must be verified in the Offering Circular before investment. Points to check include whether POSCO directly guarantees principal and interest, whether it undertakes to maintain Krakatau Posco’s payment capacity, whether liquidity support, capital support, or shareholding maintenance are included, whether obligations are unconditional/irrevocable, the governing law (Indonesia, Korea, UK, or New York), and the extent of bondholders’ remedies on breach. The name “support agreement” alone does not equate to the same recovery as a guaranteed bond.

Collateral and ranking are also important. 2024 financials note that Krakatau Posco entered a USD200mn secured facility on June 14, 2024, led by Korean Development Bank Singapore Branch, providing fiduciary guarantee over USD519.6mn of assets including HSM land, buildings, and machinery. This implies that in the event of an unsecured bond, secured bank debt may have priority in asset recovery. Bondholders should verify ranking relative to secured borrowings, lease liabilities, short-term bank loans, and tax/labor obligations.

Structural conclusion: Krakatau Posco bonds have stronger expected parent support than a typical unsupported Baa/BBB- steel issuer, but are not equivalent to POSCO parent or government-guaranteed bonds. Therefore, spread assessment requires decomposition of the gap vs POSCO parent, Indonesia country risk, steel cycle, legal strength of the support agreement, and presence of secured bank debt.

8. Capital Structure, Liquidity and Funding

Krakatau Posco’s capital structure is a highly leveraged combination of equity, bank borrowings, USD public bonds, lease liabilities, and short-term working-capital loans. End-2024 bank borrowings were USD1.306bn, bonds USD694mn, and lease liabilities USD212mn, versus period-end cash of USD17.76mn. The issuer cannot cover short-term maturities with cash alone, and maintains liquidity through operating CF, bank refinancing, relationships with parent/Korean banks, and bond market access.

The 2024 global bond issuance contributed to capital structure improvement. Financial statements show voluntary repayment of a USD680mn facility in September 2024, funded by the 2024 bond issuance, refinancing existing debt. This spread maturities to 2027 and 2029, reducing short-term bank dependency. However, USD181mn of short-term bank borrowings remained at end-2024, and some long-term bank borrowings include senior/additional facilities maturing December 2025. Progress on refinancing in 2025 is therefore a key monitoring point.

Funding channels are primarily Korean/international banks and the USD bond market. Long-term project financing in 2012-2013 was coordinated by Korea Exim Bank, and in 2024, a USD200mn secured facility led by KDB Singapore, and short-term facilities from HSBC, BNP Paribas, Korea Exim, Koexim Mandiri were confirmed. This highlights the role of POSCO/Korean bank ecosystem relationships in liquidity support. In market stress, continuity of Korean support becomes central to credit assessment.

Liquidity weaknesses are the small cash balance and interest burden. End-2024 cash of USD17.76mn is minor relative to USD2.067bn revenue, USD1.306bn bank borrowings, and USD694mn bonds. 2024 operating CF was USD248.5mn, but interest payments were USD131mn, and debt repayments were substantial. Under normal operations, liquidity is adequate, but in combination with weak market conditions, inventory growth, halted bank refinancing, or delayed export collections, liquidity could deteriorate rapidly.

Krakatau Posco’s funding capacity improved with the 2024 global bond issuance but is not yet fully robust. Market access is a major step forward, but small cash balances, high total debt, and first public-bond maturity in 2027 remain. If earnings recovery continues through 2025-2026, refinancing risk for 2027 bonds is manageable. However, a repeat of the near-zero operating profit environment of 2024, combined with higher USD interest rates or Indonesia risk premiums, could cause spreads to widen materially.

9. Rating Agency View

The main rating confirmed for Krakatau Posco is S&P’s BBB-. S&P-related reports in May 2024 stated that Krakatau Posco’s US dollar-denominated senior unsecured bonds were assigned BBB-, the same level as the long-term issuer rating. The reports stated that S&P assessed the company’s solid market position in Indonesia, stable profitability, and strategic importance within the POSCO Group. The 2024 financial statements also state that the group’s bond rating from S&P Global Ratings is BBB-.

This BBB- is the lowest investment-grade rating and does not provide a thick rating buffer. The rating should be understood not as indicating that Krakatau Posco has strong standalone financial headroom, but as placing the company at the lower end of investment grade after factoring in its market position, asset value, earnings recovery capacity, POSCO support, the support agreement, and strategic importance. Given that operating profit fell to USD12.1mn in 2024, it would be difficult to support a BBB- rating based only on standalone steel metrics. Support and refinancing track record are central to the rating.

The POSCO parent rating is also important. POSCO’s official rating page shows S&P at A- / Negative and Moody’s at Baa1 / Stable. The Negative outlook on POSCO from S&P is a monitoring point for support capacity to Krakatau Posco and overall group credit. Krakatau Posco’s BBB- is several notches below the POSCO parent, but if the parent rating declines, the value of the support agreement and market expectations for group support may also be reassessed.

Indonesia’s sovereign rating is also indirectly important. S&P maintained Indonesia’s BBB / Stable rating in July 2025. Meanwhile, Fitch affirmed Indonesia at BBB in March 2026 but revised the outlook to Negative. Krakatau Posco is not a Fitch government-related entity, but as an operating company located in Indonesia, it is affected by country risk, the legal and regulatory framework, foreign exchange, import regulations, bank liquidity, and domestic demand. If S&P’s rating assumes a Stable outlook for the Indonesian sovereign, deterioration in country risk could constrain the rating and spreads.

Rating upside is limited; investors should focus more on downgrade risk. The main risks are renewed deterioration in operating profit, refinancing difficulty, a downgrade of POSCO, weakening of the support agreement, deterioration in Indonesia country risk, and an increase in secured debt such as HSM-backed borrowings.

10. Credit Positioning

Krakatau Posco’s credit positioning naturally sits between POSCO parent bonds, Indonesian quasi-sovereign bonds, Asian steel company bonds, and similarly rated crossover corporate bonds. Compared with POSCO parent bonds, it is weaker in issuer scale, business diversification, financial headroom, rating, and liquidity. Compared with Indonesian quasi-sovereigns such as PLN and Pertamina, it is weaker in the directness of government support and benchmark status in the market. On the other hand, compared with a weak standalone steel company, it is supported by POSCO support, modern facilities, access to the public bond market, and an S&P investment-grade rating.

For US dollar bond investors, Krakatau Posco is partly “a bond that takes POSCO Group risk at a somewhat wider spread,” but that is not the whole story. It is also a bond that takes Indonesian operations, the steel cycle, the legal strength of the support agreement, the relationship between unsecured bonds and secured bank debt, and refinancing of the 2027 maturity simultaneously. Therefore, judging rich/cheap only by the spread to POSCO parent bonds is risky. If the support agreement is strong, the credit moves closer to POSCO parent risk; if it is weak, it moves closer to a standalone steel company.

As an Asian steel credit, its cyclicality is high. Steel company creditworthiness changes significantly with EBITDA, utilization, raw-material spread, capex, inventory, working capital, and refinancing access. Krakatau Posco generated strong operating profit in 2023, thin profit in 2024, and a recovery in 2025. This volatility is larger than that of stable infrastructure bonds or policy financial institution debt. Investors therefore need to treat the bonds not simply as BBB- rated instruments, but as bonds with high market beta within the BBB- category.

Overall, Krakatau Posco bonds can be included in an investment-grade portfolio, but they are not defensive quasi-sovereign bonds. Relative value should be judged by considering coupon, remaining maturity, spread to POSCO parent bonds, spread to Indonesian government bonds and quasi-sovereigns, steel market conditions, roll-down on the 2027 bonds, and liquidity at the same time. For the 2027 bonds in particular, the refinancing plan is likely to be reflected in pricing as the first maturity approaches.

11. Key Credit Strengths and Constraints

Krakatau Posco’s greatest strength is its strategic importance within the POSCO Group. The company has one of the larger revenue bases among POSCO’s overseas steel JVs, and the 2024 global bonds were described as the first public bond issuance by a POSCO Group company based on its own rating. POSCO’s provision of a support agreement is also an important credit enhancement for bond investors. This indicates that the company is not merely a non-core investment, but part of the group’s overseas steel strategy.

The second strength is its asset base as Indonesia’s first integrated blast-furnace steel mill. Capacity on the scale of 3 million tons per year, production capacity for slabs, plate, and hot-rolled products, the Cilegon location, related energy facilities, and POSCO’s operating technology support competitiveness in domestic steel supply. Asset value is substantial, with fixed assets reaching USD2.059bn at end-2024. Integrated blast-furnace facilities support cost competitiveness and product quality during normal operations.

The first constraint is standalone leverage and interest burden. At end-2024, bank borrowings, bonds, and lease liabilities totaled more than USD2.2bn, heavy relative to 2024 and 2025 operating profit. Interest payments are also substantial. Operating cash flow is positive, but headroom can quickly thin if interest, refinancing, and inventory burdens coincide. This is a major reason why the rating remains at the lower end of investment grade.

The second constraint is sensitivity to the steel cycle. The sharp decline in operating profit from 2023 to 2024 shows that the company’s earnings depend heavily on steel prices, raw-material prices, domestic demand, and export markets. Integrated blast-furnace facilities are a strength when demand is strong, but when demand is weak, fixed costs and working capital are heavy. Investors should not treat a one-year recovery as permanent earnings capacity.

The third constraint is the unconfirmed details of the support agreement. The financial statements refer to a support agreement with POSCO, but its legal strength, direct claim rights for bondholders, termination provisions, and scope of support need to be confirmed in the Offering Circular. Treating the bonds as if they were POSCO-guaranteed bonds without checking this point risks overstating recovery prospects.

12. Downside Scenarios and Monitoring Triggers

The most realistic downside for Krakatau Posco is a scenario in which steel market conditions deteriorate again while refinancing terms worsen at the same time. If operating profit becomes thin as in 2024, raw-material prices or logistics costs remain elevated, domestic demand is weak, and export prices fall, operating cash flow will be pressured. If this is combined with higher US dollar rates or wider Indonesia risk premiums, refinancing costs for the 2027 bonds would increase and S&P’s BBB- rating would come under downward pressure.

The second scenario is one in which the market reassesses the value of POSCO support. POSCO’s parent rating outlook is Negative from S&P, and the earnings, investment burden, capital policy, and disposal of low-profitability assets across the POSCO Group are important. If the parent’s credit headroom declines and willingness or ability to support Krakatau Posco is questioned, Krakatau Posco bonds will be assessed closer to standalone steel risk. If the support agreement is contractually weak, this reassessment would be larger.

The third scenario is deterioration in Indonesia operating and country risk. Fitch revised Indonesia’s outlook to Negative in March 2026. Krakatau Posco is not a government-related issuer, but it is affected by Indonesian policy uncertainty, import regulations, tax, labor, energy, foreign exchange, and bank liquidity. If domestic demand weakens, policy response becomes uncertain, and rupiah depreciation coincides with higher US dollar rates, both operations and funding would come under pressure.

The fourth scenario is the burden of facilities, impairment, and maintenance investment. The 2024 audit report identified fixed-asset impairment as a Key Audit Matter. The blast furnace, HSM, and plate facilities are core assets, but if low utilization or weak market conditions persist, recoverable values may fall. Impairment is not a direct cash outflow, but it erodes capital and can affect borrowing capacity and rating assessment. If facility maintenance or major repairs become necessary, operational shutdowns and capex may occur simultaneously.

Monitoring items are as follows.

In conclusion, Krakatau Posco reaches the lower end of investment grade on the back of POSCO support, but on a standalone basis it remains heavily exposed to steel market conditions and refinancing. In investment decisions, the support agreement, 2027 maturity, 2025-2026 operating profit, POSCO parent rating, and Indonesia country risk should take priority over the BBB- label itself.

13. Short Summary & Conclusion

Krakatau Posco is an integrated blast-furnace steel joint venture in Cilegon, Indonesia, owned 50:50 by POSCO and Krakatau Steel. Its credit should be assessed not as an Indonesian government-guaranteed SOE, but as a strategic overseas steel exposure that depends heavily on POSCO support. The direction is stable in the lower investment-grade range as long as POSCO support remains effective. Investors should confirm the legal strength of the support agreement, collateral, refinancing around 2027, steel market conditions, fixed-asset impairment, and POSCO’s own rating.

14. Sources

Key confirmed sources

• PT Krakatau Posco, Consolidated financial statements as of December 31, 2024 and for the year then ended with independent auditor's report, authorized May 5, 2025
  issuers/krakatau_posco/data/krakatau_posco_2024_consolidated_financial_statements.pdf
  https://www.krakatauposco.co.id/files/Investor%20Relation%20-%20FS/krakatau%20posco%20billingual_consol_31_desember_2024_released.pdf
• PT Krakatau Posco official website, About Us / Company profile, accessed May 7, 2026
  https://www.krakatauposco.co.id/about?lang=en
• PT Krakatau Posco Energy official website, Company Overview, accessed May 7, 2026
  https://www.krakatauposcoenergy.com/company-overview.php
• POSCO Group Newsroom, "PT Krakatau POSCO Successfully Issues $700 Million Global Bonds", June 13, 2024
  https://newsroom.posco.com/en/pt-krakatau-posco-successfully-issues-700-million-global-bonds/
• POSCO Holdings, 2025 4Q Datapack / Earnings materials, January 2026, overseas steel subsidiary data including PT Krakatau POSCO
  https://www.marketscreener.com/news/posco-2025-4q-datapack-ce7e5bdeda80f125
• POSCO Holdings, 2025 4Q Earnings Release / official newsroom summary, February 3, 2026
  https://newsroom.posco.com/en/posco-holdings-posts-krw-69-trillion-in-2025-sales-eyes-profit-rebound-with-lithium-production-and-overseas-steel-expansion/
• POSCO Holdings / POSCO official credit rating status, accessed May 7, 2026
  https://www.posco.com/homepage/docs/eng7/jsp/ir/s91b6000070c.jsp
• Bank Indonesia, "S&P Affirms Republic of Indonesia's Sovereign Credit Rating At BBB with Stable Outlook", July 29, 2025
  https://www.bi.go.id/en/publikasi/ruang-media/news-release/Pages/sp_2716525.aspx
• Bank Indonesia, "Fitch Affirms the Republic of Indonesia's Rating at BBB and Revises Outlook to Negative", March 4, 2026
  https://www.bi.go.id/en/iru/highlight-news/Pages/-Fitch-Affirms-the-Republic-of-Indonesia%E2%80%99s-Rating-at-BBB-and-Revises-Outlook-to-Negative.aspx
• Yonhap / Korean press reports on S&P BBB- rating and 2024 global bond issuance, May 2024
  https://www.hankyung.com/article/202405316125Y
  https://www.fnnews.com/news/202405171416304088
• Dentons HPRP, "Dentons HPRP Assists PT Krakatau POSCO's International Notes Offering", June 26, 2024
  https://dentons.hprplawyers.com/en/about-dentons-hprp/news/2024/june/dentons-hprp-assists-pt-krakatau-poscos-international-notes-offering

Unconfirmed items

• Full Offering Circular for the 2024 bonds, particularly the legal strength of the support agreement, bondholders’ direct claim rights, termination provisions, negative pledge, additional debt limitations, collateral restrictions, change of control, and cross default.
• 2025 audited standalone/consolidated financial statements of Krakatau Posco. POSCO data pack confirms only revenue and operating profit; total assets, cash, borrowings, interest payments, and operating CF are unconfirmed.
• Repayment/refinancing completion status of the old SFA/AFA and short-term working-capital facilities maturing in 2025.
• Shareholder support obligations on the Krakatau Steel side, the shareholder agreement with POSCO, and the background to the 50:50 structure.
• Latest S&P RatingDirect report. BBB- has been confirmed through reports and financial notes, but the latest rating outlook, standalone assessment, and detailed group support assessment are unconfirmed.
• Facility utilization, product-by-product sales volume, domestic/export mix, and raw-material cost sensitivity from 2026 onward.