State equity participation: Heavy burden for Construction SOEs
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Penyertaan modal negara: Beban berat BUMN karya
9 July 2024
By Dionisio Damara
Bisnis, Jakarta – Construction state-owned enterprises (SOEs) are currently facing financial difficulties with many reporting losses and carrying substantial debt. This situation necessitates the recovery of issuers within this business group. However, the focus of state equity participation (PMN) that is not primarily aimed at recovery means that these construction SOEs need to devise their own strategies to address their financial issues.
Two state-owned construction companies, PT Waskita Karya (Persero) Tbk (WSKT) and PT Wijaya Karya (Persero) Tbk (WIKA), are currently grappling with financial challenges. Both companies continued to report losses throughout the first quarter of this year
WSKT's losses have increased by 151% year-on-year (YoY) from Rp375 billion tp Rp939 billion. Similarly, WIKA's losses have also surged by 117.3% YoY from Rp521 billion to Rp1.13 trillion.
Meanwhile, two other construction SOE issuers, namely PT Adhi Karya (Persero) Tbk (ADHI) and PT PP (Persero) Tbk (PTPP), have successfully maintained their bottom line to remain positive. PTPP’s profit has skyrocketed by 176% YoY from Rp34.2 billion to Rp94.6 billion, while ADHI’s profit has increased by 20% YoY from Rp8.45 billion to Rp10.1 billion.
However, a bad business condition cannot be the reason to receive PMN. The House of Representatives (DPR) hopes that the funds distributed to SOEs could be used for construction.
The responsibility of restructuring problematic SOEs has been given to Danareksa SOE Holding. Meanwhile, the SOE Ministry has proposed PMN to be granted to three construction SOE issuers, namely ADHI that is proposed to receive Rp2.09 trillion, WIKA with a proposed amount of Rp2 trillion, and PTPP that is set to receive Rp1.56 trillion. In addition, the non-issuer construction SOE PT Hutama Karya (Persero) is proposed to receive Rp13.86 trillion.
Previously, SOE Minister Erick Thohir said that most of the 2025 PMN funds, which account for 69% or Rp30.4 trillion, were anticipated to be allocated for handling government tasks. As for the remaining funds, 27% is projected to be invested in business development, while the remaining 4% is expected to be reserved for restructuring efforts.
This condition pushes the SOE Ministry and construction SOEs to look for an alternative solution to improve business performance.
One of the construction SOEs that is set to receive PMN, ADHI, confirms that the proposed PMN for the company is aimed at completing government tasks.
Adhi Karya President Director Entus Asnawi Mukhson said that there were three factors behind the proposed 2025 PMN. The first factor is that the funds are to be used to complete two national strategic projects, namely the Yogyakarta-Bawen and Solo-Yogyakarta toll roads.
The second factor is related to the changes in the development conditions of the Solo-Yogyakarta-Kulonprogo toll road that have increased ADHI’s shareholding from 24% to 47.18%.
The third factor is associated with changes in the development conditions of the Yogyakarta-Bawen toll road that have led to an increase in construction and investment costs from Rp14.2 trillion to Rp18.3 trillion in order to preserve cultural heritage. Additionally, ADHI’s shareholding in this segment has also increased from 12.5% to 13.16% due to the fact that other shareholders did not inject capital in 2022
“The 2025 PMN is the best option. PMN will improve ADHI’s financial ratios, especially its debt-to-equity ratio,” he said during a hearing with DPR Commission VI on Monday (8/7).
Meanwhile, PTPP President Director Novel Arsyad said that one of the factors behind the urgency of granting PMN to PTPP was its limited financial capability.
Therefore, PMN is expected to lower its leverage ratio and improve the company’s financial condition. The capital injection is also expected to address fundraising difficulties that have arisen due to a decline in confidence in the construction SOE.
Another reason is to continue national strategic projects (PSNs) through improvements in the capital structure and the company’s business capacity.
“Projects that will use the PMN include the first stage of the Grand Rebana project and the Yogyakarta-Bawen toll road, which are PSNs. This is meant to maintain the growth momentum and aid the recovery of the national economy,” he said during the occasion.
In detail, the proposed PMN, amounting to Rp1.56 trillion, will be allocated to two PSNs. As much as Rp1 trillion will be allocated to the first stage of Grand Rebana Industrial Estate that will be in construction from 2025 to 2035. The remaining funds, approximately Rp563 billion, will be used to complete the Yogyakarta-Bawen toll road that is set to be completed in 2026.
Below target
Meanwhile, to address their financial issues, construction SOEs must implement extra effort. ADHI and PTPP have chosen to issue new debt securities to refinance mature ones. However, the companies still failed to achieve their target.
ADHI plans to issue the Continuous Bond IV Phase I 2024 that is valued at Rp1 trillion. This corporate action is part of the Continuous Public Offering (PUB) of Continuous Bond IV Adhi Karya. The aim of this offering is to raise funds of up to Rp5 trillion.
However, in its prospectus issued on Monday (1/7), the value of the Continuous Bond IV Phase I 2024 is only Rp102.7 billion. As per the schedule, the bond is set to be recorded tomorrow, on Wednesday (10/7).
Meanwhile, PTPP is also planning to offer the Continuous Bond IV PTPP Year 2024 that has a fundraising target of Rp3 trillion. The issuance of the first phase was realised with a value of Rp434.62 billion last week on Monday (1/7). Previously, PTPP set the first phase to raise Rp1.5 trillion.
Reliance Sekuritas Investment Consultant Reza Priyambada said that the default case of other construction SOE issuers have affected the decision of investors to absorb the bonds of ADHI and PTPP.
“Therefore, this condition is homework for the management to encourage market players that a default is unlikely,” Reza stated.
According to him, each company must convince market players so that their issued debt securities could be absorbed. This step also eliminates the impression that bonds will only be used to restructure previous debts.
“So, bond issuance is not an act of robbing Peter to pay Paul,” he added.
WSKT and WIKA are two construction SOE issuers that were previously implicated in a default case in relation to the payment of their bond principal value and interest.
For instance, Waskita delayed the payment of its bond interest and principal value, which amounted to Rp1.36 trillion, until 16 May 2024. This debt originated from the Continuous Bonds III Waskita Karya Phase IV Year 2019 Series B, which carries an annual interest rate of 9.75% and has a tenure of 5 years
Meanwhile, WIKA has deferred the payment for the Continuous Sukuk Mudharabah I Wijaya Karya Phase I Year 2020 Series A, which was originally due on 18 December 2023.
