KAI will allocate the largest portion of the proceeds to finance the construction of a 36.4 kilometer railway connecting Soekarno-Hatta International Airport in Cengkareng, West Jakarta and Manggarai, South Jakarta.

“Of the total bond proceeds, 55 percent will be used to complete the development of the Soekarno-Hatta airport train, while the remaining 45 percent will be allocated for train procurement,” KAI finance director Didiek Hartantyo said after the firm’s public expose and due diligence meeting on Thursday.

The bond issuance will be in two series. Bonds in Series A will have a coupon rate ranging from 7.25 percent and 8 percent a year and mature in five years.

Debt papers in series B, meanwhile, will offer a seven-year tenor and an annual coupon rate between 7.50 and 8.35 percent.

Local credit rating agency PT Pemeringkat Efek Indonesia (Pefindo) has given the bonds an idAAA rating, which is its highest rating, in an indication of the obligor’s capacity to meet its long-term financial commitments.

KAI has appointed five underwriters, namely PT Mandiri Sekuritas, PT Bahana Sekuritas, PT BCA Sekuritas, PT BNI Sekuritas and PT Danareksa Sekuritas, for the bond sales.

The bookbuilding period will last from Oct. 19 to Nov. 2 before the bond issuance is listed on the Indonesia Stock Exchange (BEI) on Nov. 22.

Mandiri Sekuritas viewed that KAI had some positive factors, which investors could take into consideration, such as long-standing experience in the railway sector, strong government support and potentially robust business growth driven by the massive infrastructure projects it is currently handling.

However, it also warned of a key risk that might emerge.

“The company requires a significant amount of external funding to finance its capex [capital expenditure]. This will lead the company’s total debt to pick up significantly with a CAGR [compound annual growth rate] of 33 percent [in 2016 to 2021),” Mandiri Sekuritas analysts Ali Hasanudin and Siti Nabila Yusianti said in a research note.

Amid a massive need for funds, KAI has maintained its optimism about its business prospects this year. It aims to collect Rp 18.9 trillion in revenue and, as of September, its revenue was valued at Rp 13 trillion.

In line with its revenue, it projects its net profit to reach Rp 1.69 trillion throughout 2017 and, as of the third quarter, it had already secured Rp 1.3 trillion.

“There are still [about] three months to go for us to achieve that projection. We are sure we can attain the target as we have seen a 10 percent growth in the number of passengers and 25 to 30 percent growth in the volume of freight,” Didiek said.

KAI is now focused on finding various funding alternatives, including the bond issuance, to finance its various infrastructure projects, particularly the government-backed ones.

Its two key projects are the development of a light rail transit (LRT) spanning 82 km across Greater Jakarta set to cost Rp 27.5 trillion and the construction of an LRT in Palembang, South Sumatra, to support the 2018 Asian Games.

KAI logistics and development director Budi Noviantoro said the construction of the LRT in Greater Jakarta had only reached 20 percent completion.

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