Management of construction SOEs: Contemplating business merger
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 - Pengelolaan BUMN karya: Reka-reka penggabungan usaha
22 May 2023
By: Rinaldi M. Azka
Jakarta - State-owned Enterprises (SOE) Minister Erick Thohir is in a good mood. During the halal bihalal event with the media, Erick answered various issues within the ministry’s environment that he leads.
Erick relaxingly answered issues regarding the appointment of the president director of a construction SOE that is related to a corruption case. He mentioned that he would focus on the role of the president director.
Then, he told a story about his plan to transform and consolidate construction SOEs.
“The construction [SOE] consolidation will be implemented. The framework is similar to that of PPA (Perusahaan Pengelolaan Aset) and Danareksa. Small [construction SOEs] will be merged. For the large ones, the ownership will be held by Hutama Karya with Waskita Karya or PP with Wijaya Karya, but it is still in discussion,” he said on Monday (8/5).
According to the financial report of PT Hutama Karya (Persero) in December 2022, the company managed assets worth Rp156.32 trillion. Meanwhile, PT Waskita Karya (Persero) owned assets worth Rp98.22 trillion.
Moreover, PT PP (Persero) Tbk until March 2023 owned assets worth Rp58.69 trillion. Meanwhile, PT Wijaya Karya (Persero) Tbk owned assets worth Rp72.74 trillion until the first quarter of 2023.
Erick forecasts that the number of construction SOEs will change from nine entities to four. However, Erick is still contemplating the plan. Construction SOEs will be merged according to their current specialisation and financial condition.
Besides the merger, Erick also mentioned that new equities would be injected into several construction SOEs, but the source of the funds is still being determined. Looking at the last several years, construction SOEs will receive national equity participation (PMN) from the government.
The SOE Ministry is focused on restructuring state-owned companies. In their restructuring framework, they are targeting less than 70 SOEs until 2025.
The option to merge companies through the establishment of holdings is often taken by the SOE Ministry. In the last five years, holdings have been established in the mining sector, in the insurance and guarantee services sector, in the plantation sector, and in the port sector.
Financial structure
According to the Associate Director of the SOE Research Group of the Management Institution of the Faculty of Economics and Business of Universitas Indonesia Toto Pranoto, the SOE Ministry needs to prioritise improving the financial structure of construction SOEs.
“The debt-to-equity ratio (DER) of public construction SOEs is already quite dangerous, especially PT Waskita Karya (Persero) Tbk. So, the equity structure needs to be stronger so that they do not rely too much on debts to finance their capital expenditure,” he said to Bisnis on Friday (19/5).
According to him, increasing equities can be achieved by inviting strategic investors or investors such as Indonesia Investment Authority (INA) to finance projects.
Moreover, it will be more ideal if projects tasked by the government can be fully financed by the state budget (APBN).
Furthermore, Toto reckoned that the establishment of the construction SOE holding was a necessity, similar to the port SOE holding or Pelindo.
There are many similarities between the lines of business, so the merger can be an alternative to improve the competitiveness of construction SOEs.
“How? The increasing number of assets and equities is certainly good for negotiations with creditors. The same goes for the specialisation of each construction SOE that can be focused on so that they are not duplicated or overlapping. They can also share their work facilities, which will improve efficiency,” he said.
Moreover, company management supervision needs to be more focused on as the control scope of the supervision is tighter. It is expected to prevent the misuse of authority, similar to what has happened in several projects.
House of Representatives (DPR) Commission VI is supporting the establishment of the construction SOE holding amid their debts and financial burdens. The establishment of a parent entity is expected to be carried out in the next year.
DPR Commission VI Chairperson Faisol Riza affirmed that the financial issues of construction SOEs needed a solution as soon as possible, such as through debt restructuring or repayment extension. Hence, the merger of construction SOEs can be carried out immediately.
“I think that the construction SOE holding has to be established immediately in the next year as debts of construction SOEs are increasingly impacting their cashflow and cost of fund,” he explained to Bisnis on Friday (19/5).
He said that the construction SOE consolidation would be a solution for the never-ending issues on debts, cashflow, licenses, and core business distribution of construction SOEs. Hence, they can be managed better.
Meanwhile, Urban Study Centre Executive Director Nirwono Joga reckoned that the plan to merge construction SOEs must focus on improving the work that they can provide professionally at an international standard, so SOEs with bad performances must be merged so that they do not burden the country.
“SOEs need to be the milking cow of the government, but they must be encouraged to be a world-class SOE. SOEs cannot be a bumper, they cannot be forced to carry out government projects that are not feasible or that can cost the country. That will make them experience a default,” he affirmed.
