Business Finance

Topics: Stock market, Stock, Initial public offering Pages: 3 (988 words) Published: August 25, 2013
a.Summary
Krakatau Steel expects to raise between Rp 2.52 trillion and Rp 3.63 trillion (US$406.5 million) from an initial public offering (IPO). Krakatau Steel would sell 3.15 billion new shares or about 20 % of the company’s enlarged stocks at a price range of between Rp 800(80 US cents) and Rp 1,150 a piece during the IPO. Danareksa Sekuritas , Mandiri Sekuritas and Bahana have been named co-underwriters of the IPO. The price-to-earnings (PE) ratio would be between 9.75 to 14 times in 2011 projected net income and and the industry’s average PE ratio is 10.2 times. State-owned Enterprises Minister is upbeat that the company’s IPO is increasing and optimistic because the market is at its peak. Krakatau will use 36% of the IPO to upgrade production capacity and 24% of the listing will be used to build new factory in cooperation with South Korea’s Pohang iron & steel

b.Analysis
From this article, we can observe that Krakatau Steel is expecting to raise its capital from Rp 2.52 trillion to Rp 3.63 trillion(US$406.5 million) from IPO. IPO (Initial Public Offering) refers to an offering made by firm to raise funds from the public by selling shares , the firm usually hires an investment banker who will arrange for the shares to be sold to the public. Definitely the firm will have many shareholders and investors running the business. Krakatau Steel needs to raise its capital as to increase productivity and upgrade the company’s hot strip mill to 3.5 million tons per year by 2013 from the current 2.4 million tons. With more capitals, the firm will be able to expand its production to gain more profits.

Krakatau Steel could not directly sell its shares to public therefore the company will need an investment banker to sell its shares. Investment banking is a financial institution that assists corporations and governments to raise capital by underwriting and acting as the agent in the issuance of securities. In this case, Danareksa Sekuritas, Mandiri Sekuritas...
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