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apitalizing on the momentum of acceleration in infrastructure development, state-owned construction firms are preparing to raise more funds with long term-maturity to finance their expansion this year after securing many new contracts.

One of the companies, publicly listed PT Wijaya Karya (Wika), is in discussion with four state-owned banks to secure working capital loans amounting to a total of between Rp 4 trillion (US$300 million) and Rp 5 trillion, with each lender expected to provide at least Rp 1 trillion.

The company will use at least 20 percent of the loans for its own operations and channel the rest to its six subsidiaries, which include precast concrete maker PT Wijaya Karya Beton, Wika finance director Antonius NS Kosasih said.

Wika wants to allocate a major portion of the loans for its subsidiaries as they also have about 20 second-tier companies in need of funding support.

Antonius said the subsidiaries often faced high borrowing costs as a result of their small size and higher risk perception.

“However, when the state-owned banks see us as a group, their risk perception of our subsidiaries is lowered. The interest rate charged to them may decline to about 9 percent from the previous 12 to 13 percent,” he said recently.

Wika recently secured a syndicated loan worth Rp 5 trillion for a period of three years from eight lenders, with Bank of Tokyo-Mitsubishi UFJ Ltd. acting as mandated lead arranger.

Such a syndicated loan with a three-year maturity period matches its financing needs since it has many projects with construction periods above two or three years, namely the Balikpapan-Samarinda toll-road project in East Kalimantan and the Soreang-Pasir Koja project in Bandung, West Java.

“We have more than Rp 9 trillion worth of cash at present. We’re cash rich now, but that’s not good for a contractor because we need to leverage the funds as soon as possible,” Antonius said, adding that the company already had Rp 6.1 trillion in additional capital from a recent rights issue.

Wika booked Rp 14.5 trillion worth of new contracts as of the third week of March, equal to 35 percent of its target of Rp 43.24 trillion for total new contracts this year.

Infrastructure and building projects contributed the largest portion of the new contracts, followed by the energy, industry and property sectors.

Another publicly listed construction firm PT Waskita Karya is seeking Rp 10 trillion of fresh funds from bank loans and bonds, which is part of its shelf offering (PUB) II totaling Rp 5 trillion. It already used the first part of its PUB through the issuance of debt papers worth Rp 1.66 trillion last month.

Waskita Karya president director M. Choliq said the company planned capital expenditure of more than Rp 32 trillion this year, of which Rp 14 trillion would come from its own consolidated equity.

Its new contracts this year are expected to reach Rp 80 trillion, higher than the 69.97 trillion in 2016. As of February, the company had reaped Rp 8.6 trillion-worth of new contracts.

Many analysts have pointed out the need for state-owned construction firms to ensure their ability to cover financial burdens that will continue to rise along with the rising number of secured new contracts, particularly when the government expedites infrastructure development to achieve its economic growth target of 5.1 percent this year; and between 5.4 percent and 6.1 percent in 2018.

The latest report published by the Asian Development Bank (ADB) shows the need for a private-sector role in infrastructure financing amid state budget limitations.

The report shows that infrastructure projects tend to be highly leveraged, with equity accounting for only 25 percent of total capital on average, meaning that debt dominates financing compared to equity. (yon)