OPTIMAL CAPITAL STRUCTURE OF PT ADHI KARYA (PERSERO) TBK

• Main Author: Salsabila, Fania
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/67140
• Institution: Institut Teknologi Bandung

Construction industry contributes significantly to Indonesia’s Gross Domestic Product (GDP) in 2021, ranking fourth among other industries. PT Adhi Karya Tbk is one of construction stateowned enterprises in Indonesia. Due to the Covid-19 pandemic situation, the firm experienced a contraction in its revenue and net income in 2020 and 2021. In order to support the firm’s project operations and performance in 2022, PT Adhi Karya Tbk proposed additional equity to Indonesia Government in the form of Penyertaan Modal Negara (PMN) by the amount of IDR 1.98 trillion. To avoid the dilution effect to the existing shareholders, the firm also plan to issue rights by the amount of IDR 1.89 trillion. Thus, the total additional equity that the firm aims to receive is IDR 3.87 trillion. However, the current capital structure of PT Adhi Karya Tbk consists of 40.29% of long-term debt and 59.71% of equity with a long-term debt-to-equity ratio of 67.47% while the construction industry’s long-term debt and equity on average is 56.82% and 43.18% respectively with a long-term debt-to-equity ratio of 154.43%. Meaning, if PT Adhi Karya Tbk receives the additional equity, its equity proportion will be even higher compared to the industry average. Based on the stated problem, it has to be analyzed whether the additional equity that the firm aims to receive is aligned with its optimal capital structure considering it deviates from the industry average. Therefore, PT Adhi Karya Tbk can have the lowest cost of capital and maximize the firm’s value. To find the current and optimal capital structure of the firm, this research uses Capital Asset Pricing Model (CAPM) to calculate the cost of equity, Damodaran (2015) Cost of Debt Model to calculate the cost of debt, and Weighted Average Cost of Capital (WACC) to calculate the cost of capital. Based on the data analysis, the optimal capital structure of PT Adhi Karya Tbk consists of 27% of long-term debt and 73% of equity with cost of capital of 14.53%. In other words, it is appropriate for PT Adhi Karya Tbk to deviate from the industry average since the industry average’s proportion is not at the optimal level. However, receiving the additional equity by the amount of IDR 3.87 trillion is too much to reach the optimal capital structure. PT Adhi Karya Tbk has to decrease the additional equity that they plan to receive for IDR 335,593,908,844 and instead issuing bonds or bank loans with the same amount. As the firms want to eliminate the dilution effect to the existing shareholders by keeping the ownership of Indonesia Government for 51% and public for 49%, the additional equity should be decreased by IDR 171,152,893,511 in PMN and IDR 164,441,015,334 in rights issues. Keywords: Optimal Capital Structure, Government Equity Investment, Construction Industry