Jakarta. Adhi Karya is considering the sale of a perpetual bond this year via its subsidiary, Adhi Persada Gedung, to raise fresh funds for the construction of the light rail transit project in the greater Jakarta area.
A perpetual bond, which is a relatively new concept in Indonesia, has no maturity date.
Although it is still classified as fixed-income securities, the proceeds will go into equity, meaning that the issuer can afford to miss paying the coupon without it resulting in a credit default.
This plan was put on the table as an alternative as the state-owned company may be forced to delay selling its shares in its subsidiary via an initial public offering until next year.
Adhi Karya may see tough competition to attract investors for its planned IPO at Adhi Persada, a contractor specializing in high-rise buildings, amid strong competition from the subsidiaries of other state-controlled companies for similar actions this year.
Adhi Karya finance director Haris Gunawan told reporters in Jakarta last week that the company is in talks with the Financial Services Authority (OJK) about the plan. He declined to disclose how much the company will seek to raise from the securities.
The OJK is currently studying the issue of perpetual bonds as an alternative to help construction companies get much-needed funding for infrastructure projects. NH Korindo Sekuritas equity analyst Bima Setiaji said Adhi Karya looks to the sale of a perpetual bond as the government does not offer a clear scheme for funding the LRT project, much of which has so far been funded from the company's own pocket.
"Adhi might choose to sell a perpetual bond, considering that such securities do not have a maturity date. The government does not provide clear payment terms for the company. If Adhi chooses to issue a conventional bond, it may result in failure to pay the coupon [to investors] on time," Bima said.
The government appointed Adhi Karya as contractor last year to build the LRT project.
Adhi Karya spent Rp 2 trillion ($150 million) for the first phase of the project connecting Cibubur with Cawang, Bekasi with Cawang, and Cawang with Dukuh Atas.
The company initially planned to raise between Rp 1.5 trillion and Rp 2 trillion from the proceeds of an Adhi Persada IPO. This plan is still under consideration and Adhi Karya already started to look for underwriters to help with the share sale.
However, since there are many other companies seeking to undertake IPOs this year, it may create undue competition in the market and therefore, the proceeds may not be optimal.
Wika Gedung, a subsidiary of state-owned construction company Wijaya Karya, also plans an IPO this year.