OPTIMIZING CAPITAL STRUCTURE FOR MAXIMIZING COMPANYâS VALUE OF PT MEDCO ENERGI INTERNASIONAL TBK
The oil industry has an important role in the Indonesian economy. Since the pandemic hit the world, oil prices have collapsed for the third time in the last 12 years. The fall in global demand for oil was allegedly the main cause. In addition to the oil market turmoil caused by Covid-19, the Russia-...
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| Format: | Theses |
| Language: | Indonesia |
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| Online Access: | https://digilib.itb.ac.id/gdl/view/70634 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | The oil industry has an important role in the Indonesian economy. Since the pandemic hit the world, oil prices have collapsed for the third time in the last 12 years. The fall in global demand for oil was allegedly the main cause. In addition to the oil market turmoil caused by Covid-19, the Russia-Ukraine war and global economic stagnation, the momentum of the shift towards new renewable energy investment will change the landscape of the fossil energy industry, including oil and gas, in the future.
PT Medco Energi Internasional Tbk as one of the largest companies in Indonesia engaged in the oil and gas industry must be able to adapt to global conditions. Fluctuating oil commodity prices are a challenge for companies to maintain their performance. MEDC also experience increase in liabilities for recent years due to acquisitions and expansions. According to company’s annual report and optimal capital structure calculation using Damodaran worksheet, the current debt ratio taken by the company is 80,98%. This situation indicates the proportion of debt taken by the company is high risk.
Based on the issue above, the company needs to optimize the capital structure to maximize the company's value. The company's capital structure will regulate and restructure the cost of capital, and the company can consider the risk and return of its choice of capital structure strategy. This research is aimed at knowing the company's current financial mix and calculating the optimize capital structure of MedcoEnergi.
The current capital structure of MEDC is not optimal with proportion debt of 80,98% and the equity 19,02%. Based on the analysis, high proportion of debt taken indicates the capital structure is not optimal and affect the company’s value. To maximize the company value, MEDC needs to decrease the debt ratio to 10% in each year projection of 5-years period ahead. According to the Damodaran framework, the alternatives strategy to do for company to achieve an optimal capital structure is divestiture by selling the assets to pay out debt since the company is under bankruptcy threat based on calculation of Altman Z-Score. The company also need to reduce their debt quickly until they reach the optimal capital structure with 10% debt ratio.
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