Analysis of IMBT Financing for the Purchase of Fixed Assets in PT Wijaya Karya Beton Tbk
Rohandi*, Septian Arif Nugroho, Teresa Irselinia, Prisscilia Iskandar
Master of Business Administration, Faculty of Economics and Business, Universitas Gadjah Mada, Yogyakarta, Indonesia
*Corresponding Author: [email protected] Accepted: 15 February 2023 | Published: 1 March 2023
DOI:https://doi.org/10.55057/ajafin.2023.5.1.1
_________________________________________________________________________________________
Abstract: PT Wijaya Karya Beton Tbk (Wika Beton) has a vision of "Becoming a Leading Company in the Field of Engineering, Production, Installation (EPI) of the Concrete Industry in Southeast Asia". To support this vision, Wika Beton prepared the Company's Long-Term Plan for 2023-2027. In the long-term plan, investment programs and company capital expenditure plans aim to support business development and company profit growth. Wika Beton has three debt-based financing alternatives that can finance capital expenditure plans:
investment loans, bonds and ijarah muntahiya bi tamlik (IMBT). This research uses a case study method combined with a quantitative method in the form of a scenario analysis by comparing the impact of several financing alternatives (investment loans, bonds, and IMBT) on the company's financial projections for 2023-2027. The purpose of this study is to evaluate various debt-based financing alternatives that companies can use to fund the purchase of the company's new fixed assets in the long-term plan 2023-2027. As a result of this study, IMBT is the most efficient financing and the most positive impact on the company's current ratio and debt-to-equity ratio.
Keywords: long-term plan, capital expenditure, investment loans, bonds, ijarah muntahiya bi tamlik (IMBT)
___________________________________________________________________________
1. Introduction
PT Wijaya Karya Beton Tbk (Wika Beton) has three debt-based financing alternatives that can be used for capital expenditure: investment loans, bonds, and ijarah muntahiya bi tamlik (IMBT). Before being decided by the investment committee, management is required to conduct an in-depth study of various financing alternatives so that capital expenditures can be approved and realized.
Therefore, this research needs to be carried out so that the company can determine the most efficient financing and positively impacting the company's fundamentals for purchasing new fixed assets drawn up in the company's long-term plan for 2023-2027.
This research also needs to be carried out because it is very relevant to the time frame for purchasing new fixed assets in the company's long-term plan. If this research is not conducted at this time, it will lose the context of the time frame that the company expects to finance its capital expenditure plan.
The aims of this research are to analyze efficiency of IMBT financing compared to other debt- based financing alternatives (investment loans and bonds) and analyze the impact of IMBT financing on company fundamentals compared to other debt-based financing alternatives (investment loans and bonds).
2. Literature Review
The company's policy in choosing financing sources will directly affect the weighted average cost of capital (WACC) and indirectly affect the cost of debt and the cost of equity because it will change the level of risk and the rate of return of debt and equity. In addition, the selection of sources of financing will affect free cash flow if the company's bankruptcy probability increases.
In pecking-order theory, companies will prioritize internal financing sources first before using debt and issuing shares. The construction business and its derivatives, including the precast concrete industry, require considerable capital, so it is unlikely that it will only rely on internal sources of financing from the company. Therefore, companies inevitably have to switch to debt- based sources of financing. Companies can apply investment loans to banks or issue bonds to finance capital expenditure needs. Another alternative financing that companies can use is to use leasing.
Each financing alternative has different characteristics and impacts on the company's financial statements. In addition, the amount of interest or interest from the alternative financing varies, affecting the cost of debt which affects the WACC and the valuation of shares of the company.
This research focused on IMBT financing, where IMBT is one type of contract in ijarah. Ijarah itself can be classified as part of leasing financing.
IMBT has several advantages over other debt-based financings, including off-balance sheets, improving financial ratios, utilizing cash flow, competitive pricing, leasing convenience, an option to purchase, and tax benefits.
3. Methods
Data needed and data sources came from company's capital expenditure plan for 2023-2027, data source from Wika Beton's Long-Term Plan 2023-2027; projection of the company's financial statements for 2023-2027, data source from the Long-Term Plan 2023-2027 Wika Beton, and preparation of projections from the author; and interest rate or ujrah on alternative financing of investment loans, bonds and IMBT, data sources from the bank offering letter, PT Wijaya Karya (Persero) Tbk coupon bonds as the parent company.
This research uses a case study method combined with quantitative methods in the form of scenario analysis by comparing the impact of several financing alternatives (investment loans, bonds, and IMBT) on the company's financial projections for 2023-2027.
Steps performed to analyze the data:
1) Input initial data in the form of projected financial statements and capital expenditure plans into the Microsoft Office Excel program
2) Prepare projections for financial statements in 2027 using the compound annual growth
4) The input of interest rate assumptions and term of payment of each financing option 5) Create a scenario analysis by using the CHOOSE function in a Microsoft Office Excel
program
6) Calculating indicators in the form of WACC and financial ratios using various financing option scenarios.
This research was conducted at Wika Beton using data from the Company's Long-Term Plan for 2023-2027. In the long-term plan, there are projections of financial statements and capital expenditure plans.
This study uses a descriptive research design by describing financial projection data and capital expenditure plans. Then this study explains the alternative financing owned by Wika Beton to finance its capital expenditure. Furthermore, the assumptions used in the scenario analysis are also carried out. Finally, compare and discuss the scenario analysis results to draw conclusions and suggestions.
4. Results
Table 1: Weighted Average Cost of Capital (WACC)
Source: Processed Author
Based on the efficiency indicators in the research results, the most efficient financing option is IMBT financing because it produces the lowest WACC consistently compared to investment loans and bond financing. This happens because the ujrah or IMBT rate is lower when compared to the interest rate on investment loans and coupon rates on bonds. In the calculation of WACC, this research uses the risk-free rate of government bonds with long-term tenors, and Jakarta Composite Index market returns are calculated by excluding anomalies during the pandemic.
This study also measures the company's fundamental indicators in the form of return on assets (ROA), current ratio (CR), debt to equity ratio (DER), and debt service coverage ratio (DSCR).
Table 2: Return on Assets (ROA)
Source: Processed Author
Measured by the ROA generated, IMBT financing produces a lower ROA than investment loans and bond financing. The analysis of the ROA results shows that the benefits of reducing the use of fixed assets in the IMBT are smaller than the increase in depreciation because the financing period is shorter than the economic life of fixed assets.
Table 3: Current Ratio (CR)
Source: Processed Author
Regarding the current ratio generated from the calculation, IMBT financing consistently produces the highest ratio compared to other financing options. In IMBT financing, the company only records rental expenses and does not record bank debt maturing in current liabilities, so current liabilities are of less value than other options.
Table 4: Debt to Equity Ratio (DER)
Source: Processed Author
Regarding the DER ratio, IMBT financing consistently shows the lowest DER results throughout the year compared to other financing options. This is because IMBT's financing is not recorded as bank debt in the balance sheet but is recorded as a rental expense in the income statement. Therefore, IMBT does not increase the company's DER ratio.
Table 5: Debt Service Coverage Ratio (DSCR)
Source: Processed Author
Furthermore, in terms of the DSCR, IMBT financing produces the highest DSCR compared to other financing options only in 2023 and 2027. The explanation of this result is that the IMBT payment scheme uses principal installments every quarter, and the nominal installments get larger at the end of the IMBT period so that there is the current portion from long-term debt (CPLTD) which is taken into account when calculating the DSCR. Meanwhile, the bonds only pay quarterly coupons, and the principal of the bonds is repaid in the fifth year, which has an effect in significantly increasing the DSCR.
The explanation of this result is that the investment loan option payment scheme and bonds use principal installments every quarter, and the nominal installments get larger at the end of the period so that there is CPLTD which is calculated as a denominator in the DSCR formula.
5. Conclusion
IMBT financing is the most efficient financing compared to other debt-based financing alternatives (investment loans and bonds) by producing the lowest WACC consistently for five years, assuming the tenor of all financing options is five years.
IMBT financing has the most positive impact on the company's current ratio and DER compared to other debt-based financing alternatives (investment loans and bonds), assuming the tenor of all financing options is five years.
For the ROA and DSCR ratios, IMBT financing is no better than other debt-based financing alternatives (investment loans and bonds), assuming the tenor of all financing options is five years.
References
Brealey R., Myers S., Allen F. 2020. Principles of Corporate Finance, 13th Edition. McGrwa- Hill Education.
Brigham, E.F., & Houston. 2018. Essential of Financial Management 4th Edition. Thompson CIMB Niaga Corporate Banking II. (2021). Financing Proposition 2021. Bank CIMB Niaga.
Dewan Standar Akuntansi Keuangan. (2008). PSAK No. 107 : Akuntansi Ijarah. Ikatan Akuntan Indonesia.
OCBC NISP. (2022). Akad Ijarah adalah: Pengertian, Rukun, Syarat dan Jenis. Accessed on June 23, 2022 from
https://www.ocbcnisp.com/id/article/2022/04/07/akad-ijarah-adalah.
PT Wijaya Karya Beton Tbk. (2021). Rencana Jangka Panjang Perusahaan 2022-2026.
Peraturan Otoritas Jasa Keuangan (POJK) Nomor 53 / POJK.04 / 2015 Akad Yang Digunakan Dalam Penerbitan Efek Syariah di Pasar Modal. 29 Desember 2015. Lembaran Negara Republik Indonesia Tahun 2015 Nomor 404. Jakarta.
Schindler, P. S. (2022). Business Research Methods (14th ed.). McGraw-Hill.
Undang-undang Republik Indonesia Nomor 21 Tahun 2008 Tentang Perbankan Syariah.
Accessed on June 23, 2022 from https://www.ojk.go.id/waspada- investasi/id/regulasi/Documents/UU_No_21_Tahun_2008_Perbankan_Syariah.pdf Undang-Undang Nomor 19 Tahun 2008 tentang Surat Berharga Syariah.
Accessed on June 23, 2022, from
https://peraturan.go.id/common/dokumen/ln/2008/UU%2019%20Tahun%202008.pdf
