Friday, March 6, 2009

Wika Plans First Half Acquisition To Diversify Into Mining Services

PT Wijaya Karya Tbk, or Wika, the largest majority state-owned construction and engineering firm in the country, said on Wednesday that its plan to acquire an undisclosed mining-services contractor in East Kalimantan Province would likely be finalized before the end of the first half.

“All of the acquisition funds will be drawn from our internal reserves,” said Ganda Kusuma, Wika’s chief financial officer. Wika currently has Rp 500 billion ($42 million) to spend — about Rp 307 billion of this being leftover cash from the company’s initial public offering in October 2007.

Ganda said the acquisition was key to diversifying the company’s businesses into the mining-services sector. “There are no other state-owned firms operating in that sector,” he said.

In late January, Bintang Perbowo, Wika’s president director, said that the company was keen to diversify into mining services, which are currently dominated by foreign companies.

Bintang said the firm had set aside between Rp 30 billion and Rp 40 billion of its total capital expenditure allocation of Rp 250 billion this year to acquire a mining-services company.

Analysts welcomed Wika’s acquisition plan as the company is well-positioned to pick up new assets at bargain prices due to current weak commodity prices.

“The time is right for Wika,” said Edwin Sinaga, president director of PT Finacorporindo Nusa, a Jakarta-based brokerage. “Commodity prices are currently low. If Wika delays the buy to the second half, there is a possibility that commodity prices could rise, pushing up asset prices.”

Rowena Suryobroto, head of research and analysis at PT Asia Financial Network, said Wika was right to aim at mining-construction services.

“The company needs to learn how to handle mining development projects,” Rowena said. “The only way to do that is to acquire a company that knows how to do these things.”

Wika made a net profit of Rp 84.91 billion in the first nine months of last year, compared with a full year profit of Rp 71.55 billion in 2007. Its shares closed up Rp 5 at Rp 220 at close of trading in Jakarta on Wednesday.

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