Optimal Capital Structure Analysis Using Adjusted Present Value (APV) Approach A Study of PLN Year 2004 - 2006
By Harry Nurhadi 19004099
Undergraduate Program School of Business and Management Institut Teknologi Bandung 2007
VALIDATION PAGE
Optimal Capital Structure Analysis Using Adjusted Present Value (APV) Approach, A Study of PLN Year 2004 - 2006
By: Harry Nurhadi ID No: 19004099
Undergraduate Program School of Business and Management Institut Teknologi Bandung
Validated By:
Deddy P. Koesrindartoto Ph.D NIP: 999 059 102
Optimal Capital Structure Analysis Using Adjusted Present Value (APV) Approach A Study of PLN Year 2004 - 2006 HARRY NURHADI 19004099 Examination Date: 15 August 2007 Graduation Date: 27 October 2007 Undergraduate of Business and Management Program Institut Teknologi Bandung 2007 Final Project Advisor: Deddy P. Koesrindartoto, Ph.D
ABSTRACT Capital Structure is one of the main factors in a company and a good capital mix between debt and equity will give company bigger opportunity in expanding business. Capital Structure is defined as “The mix of long-term debt and equity maintained by the firm” (Gitman, 2006: 538). In a company, the Optimal Capital Structure could be reached by trading off the benefit of borrowing against the cost. A company with an optimal capital structure is expected to reach the maximum firm value. Perusahaan Listrik Negara or PLN, compared to other company has a main distinction which it has a monopolistic function as a state owned company or BUMN to produce and supply electricity for Indonesian Citizens. Based on Peraturan Pemerintah Number 17 year of 1990, PLN was stated as the regulator of electricity business. But, in 1992, Indonesian Government gave the chance to private sectors to enter the electricity providing business. On June 1994, the status of PLN was changed from Perusahaan Umum to Perusahaan Perseroan. And also based on Instruksi Presiden No. 15 Tahun 1998, there was a transfer of management and share ownership of Perusahaan Perseroan (Persero) and Perseroan Terbatas from Indonesian Republic to the Minister of State Owned Company (Menteri Negara Pemberdayaan BUMN). This final project is mainly about optimal capital structure analysis at PT PLN from year 2004-2006. In analyzing the Optimal Capital Structure, the method used is the Adjusted Present Value (APV) Approach. According to Damodaran (2006:376), the first step in this approach is to find the unlevered firm value. As the debt increases, we aggregate the net effect of both the cost of debt and the benefits of debt. Then, the value of levered firm can be estimated in different level of debts, and the level in which it maximizes the levered firm value is the optimal capital structure. After analyzed by Adjusted Present Value (APV) Approach, the conclusions are first; From year 2004 until 2006 the Optimal Capital Structure for PLN is 0 percent debt and 100 percent equity. The Firm’s Levered Value is optimized when the debt ratio is 0 percent and if PLN raise debts, it may lower the Firm’s Levered Value. This situation occurs since PLN’s Earnings Before Interest Rate (EBIT) is much lower than its Interest Expense. Second, with the new assumptions where the Expected Bankruptcy Cost is assumed to be Rp. 0, – since PLN is a State Owned Company which has no
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possibility to get bankrupt – in 2004 The Firm’s Levered Value is optimized between 0 until 10 percent debt. While on 2005 the firm’s value is maximized on 10 to 90
percent debt ratio. And on 2006 the Firm’s Levered Value is optimized when the debt ratio is 0 percent. Again, this situation occurs since PLN’s Earnings Before Interests and Taxes (EBIT) is negative compared to its high Interest Expense. The Adjusted Present Value (APV) approach shows that PLN’s financial condition is inappropriate to raise debts. But since PLN does not have the authority to increase Tarif Dasar Listrik in order to raise operating income and PLN is assumed it will not get bankrupt due to the support from Indonesian Government, it made PLN relies on debt and actively raises corporate bonds to cover the lack of working capital. Key Words: PLN, Optimal Capital Structure, Adjusted Present Value
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Optimal Capital Structure Analysis Using Adjusted Present Value (APV) Approach A Study of PLN Year 2004 – 2006 HARRY NURHADI 19004099 Tanggal Ujian Akhir: 15 Agustus 2007 Tanggal Wisuda: 27 Oktober 2007 Sarjana Manajemen Institut Teknologi Bandung 2007 Pembimbing: Deddy P. Koesrindartoto, Ph.D
ABSTRAK Struktur modal adalah salah satu faktor penting di dalam sebuah perusahaan, dan komposisi modal dan hutang yang baik akan menberikan peluang lebih banyak kepda perusahaan dalam memperluas jaringan bisnisnya. Menurut Gitman (2006:538), struktur modal didefinisikan sebagai “The mix of long-term debt and equity maintained by the firm”. Struktur modal yang optimal dapat dicapai dengan mempertimbangkan keuntungan serta kerugian dari sebuah hutang. Perusahaan yang telah mencapai sruktur modal yang optimal diharapkan akan memiliki nilai perusahaan yang maksimal. Perusahaan Listrik Negara atau PLN, dibandingkan dengan perusahaan pada umumnya, memiliki keunikan tersendiri yakni memiliki fungsi monopoli dalam memproduksi dan menyalurkan tenaga listrik di Indonesia. Berdasarkan Peraturan Pemerintah No. 17 Tahun 1990, PLN ditetapkan sebagai regulator atas usaha tenaga lsitrik. Pada Tahun 1994, status PLN dirubah dari Perusahaan Umum menjadi Perusahaan Perseroan. Dan berdasarkan Instruksi Presiden No. 15 Tahun 1998 terjadi transfer manajemen dan kepemilikan saham dari Republik Indonesia kepada Menteri Negara Pemberdayaan Badan Usaha Milik Negara (BUMN). Tugas akhir ini akan membahas analisis Optimasi Struktur Modal di PT PLN Tahun 2004 sampai dengan 2006. Metode yang digunakan dalam analisis optimasi struktur modal adalah metode Adjusted Present Value (APV). Menurut Damodaran (2006:376), tahap pertama dalam metode ini adalah mencari nilai perusahaan sebelum terjadi leverage (unlevered firm value). Seiring bertambahnya jumlah hutang, dilakukan penghitungan selisih dari keuntungan dan biaya dari adanya hutang. Dan tahapan akhir dari metode ini adalah menghitung nilai perusahaan setelah terjadi leverage (levered firm value) pada setiap tingkatan proporsi hutang, dan struktur modal yang optimal dapat trerlihat dari levered firm value tertinggi. Setelah analisis struktur modal dilakukan dengan metode Adjusted Present Value (APV), ditemukan bahwa dari tahun 2004 sampai dengan 2006 struktur modal PLN mencapai titik optimal pada 100 persen modal dan 0 persen hutang. Apabila PLN melakukan kebijakan untuk berhutang maka akan menurunkan Levered firm value seiring bertambahnya ekspektasi biaya pailit (expected bankruptcy cost). Hal ini terjadi akibat pendapatan operasional (EBIT) PLN yang sangat rendah apabila dibandingkan dengan beban bunga yang harus dibayar apabila berhutang.
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Analisis selanjutnya dengan asumsi bahwa expected bankruptcy cost dianggap tidak ada (Rp 0, karena sebagai BUMN, PLN diasumsikan tidak akan pernah jatuh pailit), ditemukan bahwa pada tahun 2004 struktur modal yang optimal bagi PLN adalah pada saat debt ratio berada diantara 0 sampai 10 persen. Pada tahun 2005, nilai perusahaan setelah terjadi leverage (levered firm value) berada pada titik tertinggi mulai dari 10 sampai dengan 90 persen hutang. Sedangkan pada Tahun 2006, struktur modal PLN mencapai titik optimal pada 100 persen modal dan 0 persen hutang. Hal ini terjadi karena nilai EBIT yang negatif sehingga apabila PLN berhutang, maka akan menurunkan nilai dari perusahaan. Metode Adjusted Present Value (APV) menunjukkan bahwa kondisi keuangan PLN kurang layak untuk menerbitkan obligasi atau melakukan kebijakan untuk berhutang. Namun dikarenakan PLN tidak memiliki otoritas untuk meningkatkan Tarif Dasar Listrik (TDL) dan diasumsikan tidak akan pernah jatuh bangkrut berkat adanya dukungan dari pemerintah, maka PLN cukup bergantung pada pengeluaran obligasi sebagai salah satu sumber tambahan modal kerja. Kata Kunci: PLN, Optimal Capital Structure, Adjusted Present Value
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FOREWORD I would like to give the highly gratefulness to Allah SWT that gave me such a wonderful bless to finish this final project in order to acquire the Bachelor Degree from School of Business and Management, Institut Teknologi Bandung. During completion of this final project, the writer has had many help and support from many people. At this special chance, I would give many thanks to:
1. My Final Project supervisor, Mr. Deddy P. Koesrindartoto for giving guidance in writing the final project. 2. Mrs. Isrochmani Murtaqi, for giving assistance in the analysis phase of my final project. 3. My family, Mother, Father, Brother and Sister for the prayers, caring and support in finishing this school and this final project. 4. Erlina Hasriati, for the love and endless support in finishing this final project. 5. My closest friends, Bagas, Benny, Adit, Bagus, Panji, and Lendra. 6. My friends in SBM, especially under the same supervisor, Acha, Kethy, Aryo, Ardhi, Rifki and Orysa. 7. All friends and partners whom writer cannot write the name one by one, that has give writer enormous help materially and spiritually from the beginning until the completion of the final projects.
I realize that this final project is still far away from perfection. Thus, I expect any critics and suggestions from all readers in order to give the perfection of this final project. Hope that this final project could be useful for all readers.
Bandung, August 2007
Harry Nurhadi ix
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LIST OF CONTENTS ABSTRACT ...................................................................................................... i ABSTRAK ........................................................................................................v FOREWORD.................................................................................................. ix LIST OF CONTENTS................................................................................... xi LIST OF FIGURES ..................................................................................... xiii LIST OF TABLES ....................................................................................... xiv LIST OF APPENDIX ....................................................................................xv CHAPTER I: INTRODUCTION ...................................................................1 1.1 Background..................................................................................................1 1.2 Problem Identification .................................................................................2 1.3 Research Objective ......................................................................................2 1.4 Scope and Limitation ...................................................................................3 1.5 The Importance of Problem Solving............................................................3 1.6 Writing Systematic.......................................................................................3 CHAPTER II: THEORETICAL FOUNDATIONS .....................................5 2.1
Capital Structure .......................................................................................5
2.2
Debt Versus Equity ...................................................................................6
2.2.1 Advantages and Disadvantages of Debt ...................................................7 2.3
Capital Structure Theory.........................................................................11
2.4
Adjusted Present Value (APV) as an Approach to Estimate the Optimal Capital Structure of a Company..............................................................13
2.4.1 Steps in Using Adjusted Present Value (APV) Approach......................13 2.4.2 Interest Coverage Ratio and Bond Rating Estimation ............................16 2.4.3 Benefits of the APV Approach ...............................................................18 2.5
Characteristics of Bond, and the Advantages of Bond Over Stocks.......18
2.6
Bond Ratings...........................................................................................20
CHAPTER III: METHODOLOGY .............................................................23 CHAPTER IV: DATA COLLECTION AND ANALYSIS........................25 4.1 Company Profile......................................................................................25 4.1.1 Company History .................................................................................25 xi
4.1.2 Company’s Energy Production ........................................................... 26 4.1.3 Customer and Sales Figures ................................................................ 28 4.2
Research Object Data .......................................................................... 28
4.2.1
Financial Report Overview ................................................................. 27
4.2.2 Detailed Debt Composition ................................................................. 30 4.3
Data Analysis and Interpretation......................................................... 32
4.3.1 Analysis of PLN’s Optimal Capital Structure Using Adjusted Present Value....................................................................................... 32 4.3.1.1 Key Assumptions ................................................................................ 32 4.3.1.2 Optimal Capitals Structure Analysis................................................... 33 4.3.2 PLN’s Optimal Capital Structure as a State Owned Company ........... 44 4.3.3
Analysis Summary and Actual Condition........................................... 49
4.3.3.1 Analysis Summary ............................................................................. 49 4.3.3.2 Actual Condition ................................................................................ 50 CHAPTER V: CONCLUSION.................................................................... 53 5.1
Conclusions......................................................................................... 53
5.2
Reccomendation.................................................................................. 54
BIBLIOGRAPHY ......................................................................................... 55 APPENDIX .................................................................................................... 57
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LIST OF FIGURES 2.1 Sources of capital .........................................................................................5 3.1 Methodology Flow Chart...........................................................................23 4.1 Power Production Compositions................................................................26 4.2 Electricity Generation ................................................................................27
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LIST OF TABLES 2.1 Debt versus Equity ..................................................................................... 6 2.2 Advantages and Disadvantages of Debt................................................... 10 2.3 Bond Rating and Bankruptcy Probability ............................................... 16 2.4 Interest Coverage Ratio and Bond Ratings ............................................. 18 2.5 Bonds versus Stocks................................................................................ 20 2.6 Interpretation of Bond Ratings................................................................ 21 4.1 PLN’s Energy Production and Sales ....................................................... 26 4.2 PLN’s Customer and Sales Figures......................................................... 27 4.3 PLN’s Equity and Liabilities Composition year 2004, 2005, and 2006 . 29 4.4 PLN’s Detailed Debt Compositions........................................................ 31 4.5 PLN’s Book Value of Debt Year 2006 ................................................... 33 4.6a Bond Rating and Market Interest Rate on Debt ...................................... 36 4.6b Indonesian Bond Rating and Market Interest Rate on Debt.................... 37 4.7 PLN’s Interest Expense, Bond Rating Estimation, and Interest Rate Year 2006 ................................................................................................ 37 4.8 PLN’s Tax Benefits Year 2006 ............................................................... 38 4.9 PLN’s Expected Bankruptcy Cost Year 2006......................................... 39 4.10 PLN’s Optimal Capital Structure Year 2006 .......................................... 40 4.11 PLN’s Optimal Capital Structure Year 2004 .......................................... 42 4.12 PLN’s Optimal Capital Structure Year 2005 .......................................... 43 4.13 PLN’s Adjusted Optimal Capital Structure Year 2004........................... 46 4.14 PLN’s Adjsuted Optimal Capital Structure Year 2005........................... 47 4.15 PLN’s Adjsuted Optimal Capital Structure Year 2006........................... 48 4.16 PLN’s Optimal Capital Structure Summary............................................ 49 4.17 PLN’s Optimal Capital Structure Summary (Expected Bankruptcy Cost = 0) .............................................................. 49 4.18 PLN’s Actual Capital Structure............................................................... 50
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LIST OF APPENDIX APPENDIX A............................................................................................... A-1 APPENDIX B ................................................................................................B-1 APPENDIX C ................................................................................................C-1 APPENDIX D............................................................................................... D-1 APPENDIX E ................................................................................................E-1 APPENDIX F.................................................................................................F-1
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