EVALUATION OF PT AMNA POWER’S ABILITY TO FULFILL LONG TERM OBLIGATION

• Main Author: Alin Amna, Fathimah
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/42525
• Institution: Institut Teknologi Bandung

Government of Indonesia has opened more opportunities for private company to invest in electricity utilities sector since 2014 especially with 35GW initiative. The investment from private sector can be in the form of Independent Power Producer (IPP) or Private Power Utilities (PPU). Both forms of private sector participation are guaranteed by Power Purchase Agreement (PPA). PT AMNA POWER is a private power utility company that operates a 200 MW steam power plant. The power plant has been in operation for five years. As PPU, PT AMNA POWER have stable revenue and cash in-flow safeguarded by power purchase agreement. However, they need to be really wise controlling its expenses. The high cost of debt is one of the concerns that has been voiced by management and stockholders of PT AMNA POWER. The interest rate of the USD denominated long term borrowing has doubled since the loan agreement was signed. Since the cost of debt has become prominently discussed, this study explores that. The portion structure for debt and equity in a company is called capital structure. This study case aims to find the optimal capital structure for PT AMNA POWER. Optimal capital structure is the best structure of debt and equity that will maximize the firm’s value. The calculation of optimal capital structure will use cost of capital approach by Aswath Damodaran. This approach determines an optimal capital structure that will have the minimum cost of capital and therefore have a maximum firm value. Result of the calculation will help the company to understand at what level of debt and equity the firm can pursue in order to achieve the optimal capital structure. Currently PT AMNA POWER debt ratio is 59.17%. PT AMNA POWER is over levered, while their optimal capital structure is determined to be at a debt ratio of 10%. If PT AMNA POWER can achieve a 10% debt ratio, the firm’s Weighted Average Cost of Capital will decrease to 9.35%, thus raising the firm’s value to $203,433,457. The projected cash flow for worst case scenario when revenue is cut to 85% still comes with positive cash flow. With the positive cashflow until maturity, PT AMNA POWER can either pay off their debt, funding projects with good return or give dividend to stockholders. Along with the optimal capital structure result, it is best to fund good projects with return more than its WACC.