OPTIMAL CAPITAL STRUCTURE OF PT TBS ENERGI UTAMA TBK

• Main Author: Justin Wismanto, Farrell
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/75786
• Institution: Institut Teknologi Bandung

PT TBS Energi Utama Tbk is one of the Indonesian coal mining companies that plans to enter renewable energy industries, while also building electric vehicle ecosystem. The company requires USD 500,000,000 to support this expansion plan, the sources of which have yet to be determined. Its current capital structure consists of 54.22% debt and 45.78% equity, implying 118.44% debt-to-equity ratio. This ratio greatly contrasts from both coal and renewable energy industry average in Indonesia of 22.03% and 78.36%, respectively. Therefore, before choosing the source of funding for the projects, it is essential to examine if the current capital mix is already optimal ideal, given that the industry average is occasionally considered in targeting capital structure. This study utilizes the Cost of Capital approach in analyzing optimal capital structure, which can be found by identifying the lowest cost of capital in each debt level using Weighted Average Cost of Capital (WACC) formula. To simulate the cost of capital, this study uses Damodaran Synthetic Rating to estimate cost of debt and Capital Asset Pricing Model (CAPM) to estimate cost of equity. Based on the calculation, the current capital structure is already optimal since the current cost of capital is lower than those in all debt levels. Hence, the appropriate financing strategy is to apply the current capital mix to the investment amount, leading to USD 271,107,056 debt raised and USD 228,892,944 equity raised. Additionally, it is proper for PT TBS Energi Utama Tbk’s capital structure to differ significantly from the industry average.