State Owned Enterprises’ Debts

Currently, SOE’s debts, especially those engaged in the construction sector (construction SOEs), are in the spotlight. The solution can only be formulated by understanding the root of the problem.

KOMPAS/HERU SRI KUMORO

A Prasetyantoko

A state-owned enterprise (SOE) is a combination of a business interest and public service. The global financial auditing and consulting company PricewaterhouseCoopers (PwC) calls it a vehicle for the acceleration (catalyst) of public value creation. We know that managing an organization with multiple goals is much more complicated. There must be a balance between social goals (mission) and sustainability (business).

In a bad situation, SOEs function as saviors as in the 1998 crisis, during which their assets were sold (privatization) to cover government debts. In a good situation, SOEs become the accelerating pendulum; as in recent infrastructure development. In short, SOEs are at the forefront of the economic cycle: In a good time, they are advantaged and in a bad time, they are sacrificed. So far, SOEs have been in the center of government procyclical policies so that a new direction for the SOE management is needed in the future.

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^ The Burden of National Debts

^ Debt and Growth

Currently, SOE’s debts, especially those engaged in the construction sector (construction SOEs), are in the spotlight. As indicated by the Finance Ministry, their debt-to-equity ratio (DER) has started to spark worry . PT Adhi Karya (Persero) Tbk has a debt to equity ratio of 5.76 times, PT Waskita Karya (Persero) Tbk 3.42 times, PT PP Properti (Persero) Tbk 2.9 times, PT Pembangunan Perumahan (Persero) Tbk 2.81 times, and PT Wijaya Karya (Persero) Tbk 2.7 times. A prudent healthy company generally has a debt of less than its capital or a DER of less than 1 time.

Under a good situation, many parties (private sector) become jealous of the position of construction SOEs because they are given a lot of privileges in infrastructure projects. Apart from having a feasible project, the source of the availability of funds is guaranteed because they come from the state budget, even though their disbursement is not as smooth as expected. As a result, since 2016, construction SOEs have developed rapidly and have even led to conglomeration because their business units continue to expand into various business fields in different sectors.

KOMPAS/AGUS SUSANTO

Aerial photo of the Cibitung-Cilincing toll road project in West Cikarang, Bekasi Regency, West Java, Monday (26/4/2021). The 34.02-kilometer Cibitung-Cilincing Toll Road progress has reached 84.7 percent.

Root of the problem

The solution can only be formulated by understanding the root of the problem. Regarding the construction SOEs, we are already aware that they are the executors of the government’s program to accelerate infrastructure development in the country. Their business is part of the government\'s mission. That’s why they get the privileges from the government. The question is, how large? And, how should the balance of the ecosystem in the construction sector be established?

The pandemic has brought almost all businesses including the construction sector to a virtual standstill . In the fourth quarter of last year, this sector suffered a negative growth of 5.67 percent or worse than the previous quarter. In addition to deep contraction, this sector has not yet entered the recovery phase. Data from Statistics Indonesia (BPS) indicates that in the fourth quarter of 2019, this sector grew quite well, namely by 5.79 percent. However, the crisis due to the pandemic has deteriorated the quality of the balance sheets of almost all companies, especially SOEs.

Since 2016, SOEs have indeed played a more important role in our economy. As a catalyst for government infrastructure development, their business opportunities and business expenses continue to increase. Bank Indonesia data shows that the debts of SOEs, excluding those in the financial sector, had increased from Rp 581.33 trillion in the third quarter of 2016 to Rp 1.14 quadrillion in the third quarter of 2020. There is a consistent increase every year. Over the past four years, their debts more than doubled.

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^ Provoking Spending

The increase in the SOEs’ debts is in line with the government\'s strategic program to accelerate infrastructure development. As public companies, public trust in SOEs have increased with various assignments from the government to take charge of many projects. Because of this, their share prices continues to increase as well. The problem is, when there is business is in stagnation like now, public trust (prices) tends to fall.

Then, what is the solution? As a business unit, an SOE can take corporate action to reduce debt burdens and increase capital. PT Waskita Karya (Persero) Tbk, during a limited shareholder’s meeting (18/4/2021), decided to divest or sell its ownership in nine toll roads. The goal is to cover its losses of Rp 7.37 trillion in the 2020 financial year. In a situation like this, selling assets is a "bitter pill" because the price is not optimal.

KOMPAS/YOLA SASTRA

Workers perform soil compaction with heavy equipment in the construction of the Padang-Pekanbaru Toll Road Section I Padang-Sicincin, Padang Pariaman, West Sumatra, Saturday (13/3/2021). Of the total 36.6 kilometers in length of Section I Padang - Sicincin, only 3.8 kilometers have been completed. Toll road construction has stalled due to the slow process of land acquisition.

The prospect of the toll road business is till gloomy. BPS data shows that the land transport sector in the fourth quarter of 2020 still contracted 3.5 percent. In fact, in the fourth quarter of 2019, the growth in the sector reached 9.98 percent. The fate of the land transportation sector is far better than that of the air transportation sector, which in the fourth quarter of 2020 was still severely affected with a growth of minus 53.81 percent or rail transport, which contracted 45.56 percent in the same period. The implication is that the prospects for infrastructure projects related to the air and rail transport sector are still shrouded in uncertainty.

The establishment of the Investment Management Institution (LPI) as the follow-up to the implementation of the Law Number 11 of 2020 on Job Creation also offers a solution. Construction SOEs can divest or restructure by selling assets through the LPI. The State Owned Enterprises (SOEs) Ministry just recently issued Ministerial Regulation Number PER-03 / MBU / 03/2021 regarding procedures for write-off and transfer of SOEs fixed assets.

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Apart from divestment, corporate actions can also be carried out through restructuring to focus more on core business. There are so many subsidiaries that can be consolidated such as through liquidation, merger and acquisition or privatization.

From this experience, it seems that in the future, the strategy in the assignment of the infrastructure development to SOEs needs to change. The burdens and opportunities should be distributed more evenly by involving the private sector. The government\'s push for infrastructure development should not lead to the rise of oligopoly in the construction sector, which in a difficult situation like now has the potential to burden the government’s finance.

Apart from divestment, corporate actions can also be carried out through restructuring to focus more on core business.

Referring to the PwC report on state-owned companies, management with the 4C principles or clarity, capacity, capability and commitment to integrity is needed. Apart from the corporate actions that have to be taken as an effort to make construction state companies healthier, their governance must be also resolved. If you don\'t fix the root of the problem, SOEs will be more of a burden than an asset.

A PRASETYANTOKO, Rector of Atma Jaya Catholic University of Indonesia.

This article was translated by Hendarsyah Tarmizi.