Pindad president director Abraham Mose said on Friday that the MTN would be used to finance the company’s industrial equipment manufacturing expansion. While Pindad is known for manufacturing artillery, the firm also manufactures industrial equipment such as excavators, tractors, electricity switch gear and braking tubes for trains.

“We will use the MTN to develop our industrial equipment manufacturing business, and will soon construct facilities to manufacture electricity generators and farming equipment,” he said recently.

Abraham added that the new facility would be used to produce larger electricity generators with 15 megawatt (MW) to 25 MW capacities, while Pindad currently manufactures generators with capacities of 8 MW to 10 MW. The new production facility is expected to be completed by the first quarter of 2018.

Furthermore, Pindad also recently received a join operation contract from Saudi Arabian construction and manufacturing firm, Alfanar Group, to build low- and medium-voltage switchgears for projects developed by state-owned power firm PLN.

“Alfanar Group will manufacture their products in our facilities and we will sell it to PLN under the joint operation contract. If things work out, we may form a joint venture with them in the future,” Abraham said.

Meanwhile, Pindad sold 50 tractors and 100 excavators from January to October this year under a contract from the Agriculture Ministry and Public Works and Public Housing Ministry.

Pindad finance director Achmad Sudarto said the company had set a revenue target of Rp 2.7 trillion this year, with around 70 percent expected to come from its defense business, while the remaining from its industrial equipment manufacturing business.

“We will increase the contribution of industrial equipment business to between 40 percent and 50 percent in the future. We hope that in the next five years we can spinoff this business and bring it to an initial public offering (IPO) because it seems difficult for a defense industry firm to go public here, even though many defense manufacturing companies abroad have carried out IPOs,” he said.

Pindad faces heavy competition from main players in the heavy machinery industry, including heavy equipment firm PT Trakindo Utama and heavy equipment distributors PT Hexindo Adiperkasa and publicly listed United Tractors.

Sudarto added that the MTN was Pindad’s first capital market instrument, as it had previously relied on capital injection from the government and bank loans to finance investment. The company’s Rp 1 trillion capital expenditure last year was financed solely by the government’s capital injection to boost the defense industry.

“We started with the MTN because it has easier securitization requirements than bonds,” he said.

According to Sudarto, Pindad will continue to increase its production capacity, with an aim to triple it by 2023. However, this would require an Rp 4 trillion investment to be fulfilled.

Separately, MTN arranger PT Danareksa Capital president director Uries Budhi Prasetyo said the MTN had been divided into four series, with series A and D valued at Rp 300 billion and series B and C at Rp 200 billion. All series have three-year tenors and a 9.25 percent annual coupon.

He added that the MTN had received an A-rating from local credit rating agency PT Pemeringkat Efek Indonesia (Pefindo), and would be listed gradually at the Indonesia Stock Exchange (IDX) from November to December.

“The entire MTN has been absorbed by investors and oversubscribed. We even had to set allotments for the investors,” he said.

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