Pressure mounts on Indonesia to probe steel maker IPO

Shares in the country's biggest steelmaker soared 49 per cent from their offer price of 850 rupiah (nine cents) when they hit the market on November 10, in a showcase listing for Southeast Asia's biggest economy.

But the excitement has soured due to claims that the IPO, which was nine times oversubscribed, was priced artificially low to benefit a clutch of well-connected investors.

Lawmakers in the House of Representatives on Monday added their voices to calls for an investigation.

"The parliament has agreed that Krakatau Steel and its underwriters should be investigated," said Achsanul Qosasi, a member of parliament from the Democrats party of President Susilo Bambang Yudhoyono.

"There are many noises and rumours that the company and underwriters deliberately set a low offer price to serve the interests of certain groups."

Lawmakers demanded the Supreme Audit Agency -- which oversees government transactions -- carry out an investigation "as soon as possible", he added.

Coordinating Minister for the Economy Hatta Rajasa has reportedly backed calls for a probe, saying: "Everything that does not involve state secrets can be opened to the public."

IndoPremiere Securities fund manager Suherman Santikno agreed that there should be a probe into the IPO of Krakatau Steel, as there were allegations that the share was set at an unfair price.

"Let's just open it, this is not a state secret. The underwriters should have the data on the allocation of shares," Santikno said.

"I don't think the investigation will have any effects on other IPOs in the country. The confidence of foreign investors will likely to increase if there is a probe," he said.

The stock leapt from its 850 rupiah offer price to 1,270 rupiah on its first day of trading, hitting the maximum daily gain and triggering an automatic block on higher bids. It traded at around 1,290 rupiah per share on Tuesday.

The company sold 3.2 billion shares for 2.7 trillion rupiah ($302 million), making it the biggest IPO by value for a state-owned Indonesian company since 2006.

Underwriters Mandiri Sekuritas, Danareksa Sekuritas and Bahana Securities have said the offer price reflected the earning ratios of comparable companies and have denied any outside interference, the Jakarta Globe daily reported.

Krakatau says it plans to use the funds to modernise machinery and increase capacity, with demand for steel in Indonesia expected to track the emerging economy's growing infrastructure needs.

Krakatau's net profit more than doubled to 1.0 trillion rupiah in the calendar year to September.