Reflects Positive Evaluation from Global Investors on Stable Profitability and Strategic Importance within the Group

$300 Million in 3-Year Bonds and $400 Million in 5-Year Bonds with an Interest Rate of 6.375%, Totaling $700 Million

POSCO’s Indonesian joint venture, PT Krakatau POSCO, successfully issued global bonds totaling $700 million on May 30. The dual-tranche bonds consist of $300 million with a 3-year maturity and $400 million with a 5-year maturity. This marks the first instance of a POSCO Group affiliate issuing global public bonds based on its own credit rating, independent of POSCO. The bonds have an interest rate of 6.375% for both maturities, and the funds raised will be used to repay existing debt.

* Dual-tranche: Issuing two bonds simultaneously with different maturities or interest terms.

PT Krakatau POSCO is an integrated steel mill jointly formed by POSCO and Indonesia’s state-owned steel company, Krakatau Steel, in 2010. It currently operates one blast furnace with a production capacity of 3 million tons, along with hot rolling and heavy plate mills. The successful bond issuance by a local steel company in Southeast Asia, a region with relatively high country risk, is attributed to stable performance and the strategic importance of the project in the group’s overseas operations.

PT Krakatau POSCO has reported operating profits for three consecutive years, making it the third most significant entity in the group following POSCO International. On May 17, the international credit rating agency Standard & Poor’s (S&P) said in a report, “PT Krakatau POSCO is expected to maintain a solid market position and stable profitability in Indonesia. Considering its substantial role and investment scale in the group’s overseas operations, it is deemed a strategically important subsidiary.” S&P assigned a BBB- (stable) credit rating to its unsecured U.S. dollar bonds.

These points were emphasized during global investor presentations for the bond issuance. PT Krakatau POSCO announced its intention to issue global bonds in the Asian market on May 17, and began investor recruitment. From May 20, investor presentations were held in Singapore, Hong Kong, and London. POSCO, the parent company, also participated in these presentations to support PT Krakatau POSCO.

Ultimately, the bond issuance attracted 191 global institutional investors, with orders amounting to approximately $4.9 billion, nearly seven times the final offering amount. As a result, 80% of the bonds were allocated to Asian investors, while European and Middle Eastern investors received 20%.

Indonesia has a rich amount of tropical resources focusing on agricultural development. While the nation has had expanded trade surplus and has a rich amount of natural resources, Indonesia still has poor education systems where only one third of instructors have completed a college education. POSCO and its employees have made efforts to improve the education system in hopes to help build the future for Indonesian children.

Dreaming of joyous schools in Indonesia! About POSCO’s education improvement project

Krakatau POSCO has been funding education improvement projects led by ChildFund Korea. In partnership with ChildFund Indonesia,  POSCO has helped set up schools in villages near steelmills called Samangraya, Kubangsari and Tegalratu.

Pictured here: POSCO employees planting flowers with students in Indonesia

Overall, there were four programs included under the slogan “Sekolah Asik” which means “joyous schools”. The programs included: 1) Training program for educators, 2) Voluntary programs for students, 3) Education infrastructure improving program, and 4) Volunteer opportunities for employees of Krakatau POSCO.

[box] What is Krakatau POSCO? Krakatau POSCO was jointly established by POSCO and Indonesia’s state-run Krakatau Steel at a share ratio of 7 to 3, and boasts iron making, steelmaking, and steel plate production facilities. The company is capable of producing 1.8 million tons of slab and 1.2 million tons of steel plate annually. It is especially noteworthy as it is the first integrated steel mill that was established by POSCO in Southeast Asia. It was a new milestone in overseas steelworks construction as it involved various POSCO businesses in different fields including construction, power generation, and IT. POSCO is planning to operate steelworks in Indonesia to create a steel belt that connects China, Vietnam, Indonesia and India in order to target the entire Southeastern Asia region.[/box]

More about the education improvement programs in Indonesia!

Since last September, education environment improving activities have started in Krakatau POSCO that specifically target schools near the steel mill. Krakatau POSCO has participating in volunteer projects in efforts to support poor education conditions in Indonesia. Let’s explore the different types of work that POSCO employees have been involved in so far.

Improving qualification of instructors and increasing student participation!

Currently, less than one third of instructors have completed college education in Indonesia. Thus, improvement of the qualification of instructors is a major issue. To address this, Krakatau POSCO has created a training program for educators in order to improve their teaching capabilities. This program is in line to be expanded for total 6 schools and 120 students in 2014 by request of schools nearby.

Pictured here: A student in Indonesia holds up a picture that portrays the type of school she dreams of

Pictured here: Krakatau POSCO’s director, Kyung Joon Min, participates on one of the volunteer days in Indonesia

Pictured here: POSCO volunteers and children participating in an athletic competition

In addition, volunteer programs for students were created in order to give students a chance to trade positions and actually take part in education improvement projects. To raise awareness among students, students were asked to provide suggestions for areas to improve. Through discussion, students got involved in deciding and ultimately participating in volunteer work.

Improvements to education infrastructure and volunteering

Conditions at schools near Cilegon which is where the steel mill is located are very poor. In fact some schools do not have any desks so students participate in classes from the floor. There are no washroom facilities at school so students must go to nearby homes. Schools that are funded by the government are relatively better, but privately funded schools are in dire conditions.

Pictured here: Krakatau POSCO employee teaching children how to wash their hands

Krakatau POSCO is addressing these harsh school infrastructure conditions by providing desks, school materials and even building bathrooms, libraries and other education infrastructure. Going forward, employees at Krakatau POSCO plan to participate in volunteer programs at these schools.

Pictured here: Making improvements to the education infrastructure in Indonesia

Surprising changes made through improving the education environment

Three schools in the area of Cilegon are now witnessing many positive changes due to education improvement projects led by Krakatau POSCO. As instructors have learned various teaching methods and new skills, the 1,071 students at the three schools are now much happier and participate more in class as well!

Here is a short video highlighting the positive influence that Krakatau POSCO has had on the education system in Indonesia.

Below are feedback from those impacted by the education improvement projects in Indonesia.

Pictured here: POSCO employees with students

Webi Andriansah (Employee in the Environment & Energy department at Krakatau POSCO): Students made me feel like I was a big brother to them. Also they asked many questions about my job, experiences of school, family etc. I felt many emotions when I shook hands with student after the class. This activity was not only a new experience to students but it also affected my life values and mind!

Ana Siva Urrohmah (6th grade student): I’m a student of SDN Samangraya Ⅱ. I’m so happy and thankful for the classroom that my friends and I can use. I’m curious about how the new classrooms will incorporate our opinions and I am sure it will make our educational experience more joyful. In addition, now that we have sports equipment, we can now participate in events that we previously could not join in.

Waldatun TH (Teacher at SDN Tegal Kidondong ): The training program I participated in was a great opportunity to share opinions and ask questions freely. The program supporters answered questions so actively even during lunchtime or afternoon breaks. I got confidence by being able to actually apply methods that I learned through this program in the classroom!

We hope you enjoyed our blog post about the efforts that Krakatau POSCO is making in Indonesia to improve the education experience for students! POSCO is building a better, brighter future for the younger generation!

This marked the first time in 40 years that POSCO began producing molten iron overseas since its first effort on Yeongilman Bay in Pohang. POSCO’s 40 years of devotion to steel has begun to make its appearance overseas.

Approximately 500 employees and government officials of both countries attended the ceremony. These attendees included the Indonesia president Yudhoyono, the head of Indonesia’s Ministry of Trade Hidayat, the Vice Minister of  Korea’s Ministry of Trade, Industry, and Energy Kim Jaehong, Korean Ambassador to Indonesia Kim Yeongseon, ASEAN Ambassador Baek Seongtaek, POSCO CEO Chung Joonyang, Krakatau President Irvan, client companies, construction companies, suppliers, external partners, and regional representatives.

In his congratulatory speech President Yudhoyono said, “I anticipate that Krakatau POSCO’s steel products, manufactured at these cutting edge facilities will both satisfy steel demand in Indonesia, and greatly contribute to economic growth and job creation.”

CEO Chung said, “The past 30 months of integrated steelworks construction was not an easy journey, but we have succeeded with the strength of Korean technology and Indonesia’s excellent manpower. Just as POSCO’s philosophy of serving its home country by the means of steel production became the basis for national economic development in Korea, I am certain that Krakatau POSCO will serve Indonesia in the same capacity.”

Krakatau POSCO was jointly established by POSCO and Indonesia’s state-run Krakatau Steel at a share ratio of 7 to 3, and boasts iron making, steelmaking, and steel plate production facilities. The company is capable of producing 1.8 million tons of slab and 1.2 million tons of steel plate.

Krakatau POSCO plans to reach positive operating profits in 2014, its first year of operation, through proactive market development and low-cost production technologies. The company will proactively secure sales networks in the domestic market where prices are higher than exports, and sell 1.5 million tons of slab and 600,000 tons of steel plate in Indonesia.
The company also plans to secure competitiveness in its early stages, through innovative cost reduction activities such as utilizing POSCO’s unique production technology which can employ low grade materials, and thus gradually utilize Indonesian steel ore in place of costly imported steel ores.

Over the course of the integrated steel works project, the POSCO Family companies in each field, including construction, power generation, and IT, gathered together to mark a new milestone in overseas steelworks construction. When the Pohang Steelworks was first built 40 years ago, POSCO had to solely rely on overseas technologies but it can now construct overseas steelworks on its own.

POSCO E&C was responsible for overall engineering and construction of the integrated steelworks including iron making, steelmaking, and steel plate production facilities, while POSCO Energy was in charge of constructing a steam power plant. POSCO ICT established the EIC engineering and IT integrated system, while POSCO CHEMTECH supplied a processing facility producing limestone furnace and coke byproducts. POSCO M-TECH built a factory to produce aluminum deoxidizers, necessary for molten iron production. Daewoo International will support overseas exports and domestic sales of the steel materials produced in Indonesia, as well as new resource development in Indonesia.

In addition, 248 Korean small and medium sized companies participated in the construction of the Indonesian integrated steelworks, setting an example for win-win cooperation between large scale and small and medium sized companies. These small and medium sized companies were thus enabled to be involved with advanced steel facilities and global capabilities via POSCO.

The necessary equipment for the steelworks was provided by 222 small and medium sized companies, including Taechang Machinery which provided equipment to custom cut steel plates according client requirements, and Hyundai Mechanic & Electric which provided electric power receiving and distribution facilities. Overseas on-site construction was carried out by 26 companies, including Dongjin and Daeah E&C.

Indonesia makes up a large market, with a population of 250 million, maintaining an average annual growth at 6%. The market has excellent steel consumption potential, as 12.5 million tons of steel are necessary for economic growth. However, Indonesia has mostly relied on imports, with annual steel consumption per person of 50kg, less than one-twentieth that in Korea. There are no quality and cost competitive steelworks in surrounding economic areas, including Vietnam, Malaysia, and Myanmar, thus ensuring further market potential for the steel industry in Indonesia. By commencing operations of the Indonesia integrated steelworks POSCO plans to complete a steel belt spanning China-Vietnam-Indonesia-India to target the Southeast Asian market, and continue to grow as a global steel company offering the world’s best competitiveness.

POSCO’s New Success Story: Integrated Steelworks in Indonesia

POSCO has started its construction of Krakatau POSCO, an integrated steelworks in Cilegon, Indonesia, from October 28, 2009. The first stage of the construction, targeting for 3 million tons of annual production, is scheduled to be completed by the end of December this year.

Krakatau POSCO, South East Asia’s first integrated steelworks, is a joint venture between POSCO and Indonesia’s state-run steelmaker Krakatau Steel. By utilizing POSCO’s extensive experiences from initiating the era of steel industry in Korea 40 years ago, and the know-hows of managing various overseas mills in China, Vietnam, and Mexico, POSCO will make a new success story in the land of opportunity, Indonesia.

Suh Chang-yup has been dispatched to the Coke Plant Construction team and he is now working as a technological consultant for the ‘coke oven part,’ the most important area of the construction.