The Trans-Java toll road, a 1,167-kilometer expressway across Indonesia’s main island, is a major infrastructure project aimed at modernizing the country’s economy. However, the project, along with other big-ticket investments, is a result of the overspending by Indonesia’s largest builders and developers in the past decade. The top four construction firms, including the toll road’s main builder, state-owned PT Waskita Karya, have seen their debt increase more than twelvefold to roughly 130 trillion rupiahs ($8.6 billion) since President Joko Widodo took office.
Despite restructuring 29 trillion rupiahs of bank loans in 2021, Waskita Karya has requested a fresh capital injection from Jakarta. Private property development companies are also facing mounting obligations, just as rising interest rates reduce demand. The struggles are reminiscent of debt debacles in China and South Korea last year and have raised concerns that the financial strain could spread among Indonesian firms, fueling another potential source of distress in Asia.
Waskita Karya has 2.3 trillion rupiahs of local bonds maturing later this month and another 2.4 trillion due by May 2024. The company is seeking long-term financing from abroad to have more time to rearrange its finances and deal with the upcoming bond maturities. It is also seeking to resume a delayed 3 trillion rupiah rights issue to the government by mid-year, reviewing its restructuring agreement with bank lenders, and entering strategic partnerships for its toll road assets. The company is aiming for a fundamental restructuring to improve liquidity and reduce its debt load.
Waskita Karya, which trades on the Indonesia stock exchange but is majority-owned by the government, competes with other state-backed firms for public contracts to build and often run infrastructure projects like dams and rail lines. However, working capital needs are intense, and the company has struggled to manage mismatches between payments to subcontractors and disbursements from the government. Waskita Karya’s long-term liabilities reached an all-time high of 62 trillion rupiahs at the end of its fiscal third quarter, and its financial charges, which include interest expenses on its bonds and loans, were more than three times its gross profit.
Ballooning obligations have pushed the company’s total debt-to-equity ratio to 440 times, compared with 42 times for state-owned PT Semen Indonesia and 37 times for PT Chandra Asri Petrochemical. Indonesian credit rating firm Pefindo downgraded the company to BBB- from BBB last month and put it under watch for further cuts, citing repayment risks tied to its upcoming bond maturity. Analysts believe that it would not be in the government’s interest to let the company fail as its failure could cause significant contagion risks.
Waskita Karya is not the only company facing financial stress. Developer PT Kawasan Industri Jababeka, which runs an industrial complex east of Jakarta, completed a distressed exchange with holders of dollar bonds due in 2023, allowing it to extend the debt’s maturity until 2027. Residential property developers, such as PT Lippo Karawaci and PT Agung Podomoro, are facing significant debt loads and weakening sales amid higher interest rates. The financial strain is a reminder of the high-profile debt debacles in China and South Korea last year, and some warn that it may only be a matter of time before the financial strain spreads further among Indonesian firms, fueling another potential hotbed of distress in Asia.
