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tate-owned construction company Hutama Karya expects to raise Rp 6.5 trillion (US$74.9 million) from bond issuance within two years to finance the trans-Sumatra toll road project that is expected to improve the nation’s connectivity.

The government has instructed Hutama Karya to prioritize the construction of eight sections of the 645 kilometers of trans-Sumatra toll road with total investment value expected to reach Rp 81 trillion. The eight sections should be in operation by the end of 2019.

Hutama Karya president director I Gusti Ngurah Putra said the company would secure Rp 21 trillion from a combination of state capital injection, bond issuance and viability gap fund (VGF) from the government as support for the project.

“Financially, trans-Sumatra is not beneficial [for the company], but economically it is desperately needed by people to reduce travel costs,” Putra said.

The government assigned Hutama Karya to build the toll road to improve connectivity in the region despite the lack of commercial appeal, as it is in line with President Joko “Jokowi” Widodo’s infrastructure push during his five-year tenure.

Hutama Karya will start gauging demand for its bond offerings from November 16 to 29. Offerings will occur from December 14 to 15. Debt papers are expected to be listed on the Indonesian Stock Exchange (IDX) on December 21.

The first phase of the bond issuance aims to generate at least Rp 1 trillion by the end of the year. The bond only carries one series which offers coupon rates between 8.2 percent and 8.65 percent and will mature in ten years. Interest payments will be disbursed every three months.

The company has appointed Bahana Securities, Danareksa Sekuritas and RHB Securities Indonesia as underwriters for the bond sales.

In the second phase of bond issuance, Hutama Karya aims to raise Rp 2.5 trillion next year. During the final phase in 2018, it expects to obtain Rp 3 trillion.

Finance director Anis Anjayani said the company only offered a long-term bond series because trans-Sumatra was a long-term investment.

To meet the shortage in funding the project, the company plans to collaborate with state-owned infrastructure financing company Sarana Multi Infrastructure (SMI) and local banks, Anis added.

“SMI will collaborate with national banks because it will not be able to handle this alone,” Anis said, adding that SMI has provided around Rp 6 trillion for the three constructed sections.

Out of the eight sections planned for the trans-Sumatra toll road, the construction of three sections has begun. About 84 percent of land procurement for the 17 km Medan-Binjai route has been completed and the road construction is 34 percent finished.

Meanwhile, the 22 km Palembang-Indrayana section saw similar progress for land acquisition and construction. Land procurement for the 140 km Bakauheni-Terbanggi Besar is 43 percent done and the construction progressed by 14 percent.

The other five sections are Pekanbaru-Dumai, Terbanggi Besar-Pematang Panggang, Pematang Panggang-Kayu Agung, Palembang-Tanjung Api-Api and Kisaran-Tebing Tinggi. (wnd)