The Ministry of State-Owned Enterprises has planned to launch an IPO for its fertilizer company PT Pupuk Kalimantan Timur (Pupuk Kaltim) in the first semester of 2023. The IPO proceeds will finance the construction of a urea plant with a production capacity of 1.15 million tons and 1 million tons of methanol per year.
Pupuk Kaltim is the biggest subsidiary of state-owned fertilizer company PT Pupuk Indonesia with a production capacity of 6.5 million tons per year. Pupuk Indonesia itself has a total capacity for fertilizers and non-fertilizers of 21.1 million tons per year.
Expansion plan
SOE Deputy Minister Pahala Mansury said the IPO proceeds would be used for the construction of ammonium and urea factory in West Papua. The factory will require a US$ 2 billion investment.
“We are currently finalizing the financial report for Pupuk Kaltim and selecting financial and legal advisors to support the IPO,” he told a hearing with the House of Representatives (DPR)’s Commission VI overseeing industry  and investment on December 7, 2022.
“Pupuk Kaltim’s capacity to produce urea is the biggest in Southeast Asia. We hope to increase the production in the future,” he added.
Currently, the need of fertilizer per hectare in Indonesia is lower than Malaysia and Vietnam. “We hope it can be a source for future growth,” Mansury said.
With the IPO, Pupuk Kaltim was upbeat to optimize domestic gas production, which is expected to continue to increase in 2027-2030.
House member Andre Rosiadi said the government should clear out the source of gas and the gas price before the DPR gave its approval for Pupuk Kaltim to go public.
“We need to make sure that the government and relevant ministries secure the agreement of gas allocation for Pupuk Kaltim before the IPO,” he said. He added that 70% of the fertilizer component cost is gas.
Rosiadi said Indonesia would need to increase its fertilizer production to achieve food self sufficiency considering that the ongoing Russia-Ukraine war has created global food crisis.
Will IPO attract the market?
Toto Pranoto, an observer of state owned enterprises of the University of Indonesia (UI), said the IPO of an SOE subsidiary would be a good measure to give alternative financing for state owned companies. So far, state owned enterprises and their affiliations opted for loan as a source of financing. “It becomes a heavy burden during crisis like the COVID-19 pandemic because they still have to pay the interest,” he said.
He explained through an IPO, the instrument for financing would be equity. If an SOE wanted to go public, it would have a good impact on the structural balance of state owned enterprise financing and its subsidiary.
“By becoming publicly listed company will make a state-owned enterprise more transparent, fair and accountable,” Pranoto said.
However, he warned that as the global economy was moving towards a recession, the prospect of an IPO, even for state-owned enterprise, would have several issues. The biggest issue will possibly be that investors will not look into capital market as an investment destination in 2023.
