KT&G Restructures Business in Indonesia Amid Relaxed Regulations

Thanks to the relaxation of local foreign investment regulations, KT&G is restructuring its business in Indonesia. It has issued loans to its subsidiaries for the construction of new factories.

On March 8th, industry insiders reported that KT&G's subsidiary, PT Trisakti Purwosari Makmur (Trisakti), had merged with PT KT&G Indonesia on January 1st. KT&G stated that the purpose of the merger was to establish a foundation for sustainable growth in the medium and long term by effectively reinvesting in local profits in Indonesia.

KT&G's business in Indonesia is operated by three companies: Trisakti, PT KT&G Indonesia, and PT Nusantara Indah Makmur. KT&G controls Trisakti and PT Nusantara Indah Makmur through its intermediate holding company, Renzolluk. PT KT&G Indonesia is a subsidiary of KT&G and is directly controlled by it. Through this restructuring, Indonesia's tobacco business will be unified under Renzolook's management.

Trisakti is a subsidiary of Renzolook. KT&G entered the local market in November 2011, acquiring 100% of Renzoluk's shares for 89.7 billion won, with Renzoluk owning a 51% stake in Indonesian cigarette manufacturer Trisakti. Sales company PT KT&G Indonesia was established in February 2013. The deal represents the integration of manufacturing and sales.

Due to Indonesia's local foreign investment regulations, KT&G separated its sales and manufacturing companies. With local regulations easing, the company has restructured its management system.

An official from KT&G stated that the relaxation of investment restrictions on foreign companies in Indonesia's "Omnibus Law" issued in 2021 has driven this merger. It is expected that management efficiency will be enhanced, such as reducing shared costs and tax savings.

Trisakti's sales and net profit for the previous year were KRW 208.8 billion and KRW 31.6 billion, respectively. PT KT&G Indonesia's sales and net profit, on the other hand, were KRW 291.4 billion and a loss of KRW 2.3 billion.

On January 18th, in accordance with a decision made by the board of directors, KT&G loaned $44.5 million to Trisakti last month to construct a new factory in Indonesia as part of their streamlined governance structure. The establishment of their second factory in Indonesia is expected to accelerate market penetration.

Indonesia is the largest country where KT&G operates its business. It is also one of the largest tobacco-consuming nations, with an estimated 70% of males over the age of 15 being smokers.

References:

KT&G to restructure its domination of Indonesian tobacco industry.