Jakarta. The government's plan to involve state-controlled construction firm Adhi Karya in a joint venture to operate Greater Jakarta's light rail transit network could weigh down the company's profitability, analysts said.
State-owned railway operator Kereta Api Indonesia, Adhi Karya and infrastructure financing company Sarana Multi Infrastruktur are set to join the venture with a total paid up capital of Rp 9 trillion ($665 million).
Adhi Karya will have to pay up a share of Rp 1.4 trillion in the joint venture, Kereta Api Indonesia — that has a majority stake — Rp 4 trillion and SMI Rp 3.6 trillion.
Adhi Karya will control 20.3 percent of the venture, requiring it to book a likely loss under the equity method, Aurelia Barus, an equity analyst at CIMB Securities, wrote in a research note on Wednesday (29/11).
"Adhi Karya may need to take on Rp 1 trillion more in loan in 2018 — increasing its interest expense by 14 percent — if the payment for the project's construction is further delayed due to the change in investors," Aurelia said.
Indopremier Securities also said in a note to clients that Adhi Karya may have to expect lower revenue from the LRT project due to the change in the project's owners.
Adhi Karya was signed up as a contractor for the project in 2015. The government promised then that it will shoulder all of the costs.
But it backtracked on the commitment and asked Kereta Api Indonesia to fund it.
To add to the complications, the cost for the project swelled to Rp 31.8 trillion from Rp 22 trillion initially to add more stations, a depot and make changes to the trains' signaling system.
Adhi Karya president director Budi Harto said the joint venture is now the company's most viable option as the new entity can leverage its capital by raising funds from bank loans up to twice the original capital.
CIMB Securities' Aurelia agreed with the assessment, arguing "KAI already has too much on its plate," including Rp 88 trillion worth of projects in the pipeline and another Rp 108.2 trillion worth of projects it is already committed to.
Adhi Karya will get the Rp 1.4 trillion from state capital injection.
The LRT is part of a Jakarta megaproject to improve its public transportation and is expected to start operations in 2019.