UPDATE 1-Indonesia's Krakatau Steel aims for IPO in mid-2010

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JAKARTA, Nov 3 (Reuters) - Indonesia's state-owned steel maker, PT Krakatau Steel, aims to sell a 20-30 percent stake in an initial public offering in the middle of next year, the firm's presidential director said on Tuesday.

Krakatau Steel was one of several Indonesian state-owned firms slated for privatisation, seen as a way to improve its performance, increase efficiency, and raise funds for the state's budget deficit. But last year's financial crisis meant those privatisation plans were put on hold.

"We aim to do an initial public offering by middle of next year, selling 20-30 percent," Fazwar Bujang, Krakatau Steel's president director, told reporters.

"It's not much, but the important thing is it will be liquid in the market," Bujang said.

Proceeds from the IPO will be used partly to finance a joint-venture steel project with South Korea's POSCO (005490.KS), the world's No. 6 steel maker, he said.

The project involves building a new steel plant at Krakatau Steel's vast industrial complex in Cilegon, West Java, with a total capacity of 5 million tonnes a year which will cost $5 billion. [ID:JAK122870]

Krakatau Steel and POSCO plan to sign an agreement by the end of this month, Bujang said.

"Studies show the project is feasible, so we will move on to signing the agreement," he said, adding that Krakatau Steel wants to have a 30-45 percent stake in the venture, leaving POSCO with a majority stake.

The project would help increase the firm's capacity to 3.5 million tonnes a year, from 2.5 million tonnes currently, Bujang said. (Reporting by Yayat Supriatna; writing by Fitri Wulandari, editing by Sara Webb)