FILE PHOTO: A man walks past screen at the Indonesia Stock Exchange building in Jakarta, Indonesia, September 6, 2018. REUTERS/Willy Kurniawan
JAKARTA: The government plans to restrict financially unsound state-owned enterprises (SOEs) from issuing bonds in the hope of preventing them from defaulting on payments.
The plan was outlined by SOE Minister Erick Thohir during a meeting with the House of Representatives earlier this month.
The ministry has been in communication with the Financial Services Authority and the Indonesia Stock Exchange (IDX) to unify their views regarding the planned deliberation.
Ministry spokesperson Arya Sinulingga said last Thursday the decision followed the failure of a number of state-owned construction firms to make timely coupon payments on their corporate bonds.
The ministry, he said, would be more selective in allowing SOEs to seek debt financing from bonds.
“Of course, the financial condition of the SOE must be good. No more fraud. Only those which are healthy financially can issue bonds,” he said, as quoted by Bisnis.com.
In May, state-owned construction firm Waskita Karya failed to convince its creditors to postpone payments on its 135.5 billion rupiah (RM43mil) debt, which resulted in its defaulting and the IDX halting trading on its stocks.
Later that same month, another construction SOE, Wijaya Karya (Wika), made a request to its creditors to delay its bond payments, which was approved so the company escaped a similar fate to Waskita.
Local ratings agency Pefindo has lowered both Waskita and Wika’s debt ratings, highlighting that it was plausible the former’s ratings could be downgraded further into default, as reported by Bisnis.com.
Experts told The Jakarta Post that the planned restrictions were unlikely to be effective in curbing future defaults, as they failed to address the fact that the failed payments were also the government’s own doing.
Yusuf Wibisono, director of Indonesia Development and Islamic Studies, explained to the Post last Friday that the government had assigned SOEs with numerous infrastructure projects that had resulted in mounting debts for the SOEs.
SOEs have been racking up debt as they are tasked with realising the government’s grand development ambitions amid a lack of state budget capability to finance them.
At the same time, these projects are not economically viable as shown by many private companies’ reluctance to enter, he said.
Some SOEs did acquire cash injections from the government for the projects, but the amount was often insufficient, with SOEs expected to find loans to finance the remainder of the work, he said.
The Supreme Audit Institution wrote in its state examination report published in June that SOEs were lacking capital support from the government to carry on their assigned projects, resulting in many firms bearing the mounting loans and piling interest rates.
The agency provided the example of construction SOE Hutama Karya, which has had to shoulder over 2.86 trillion rupiah (RM904mil) in interest rates as the company works on the trans-Sumatra toll road while only having 66% of project costs supported by the state as of last year.
Tauhid Ahmad, executive director of the Institute for Development of Economics and Finance, told the Post he expected the new restrictions may not have a significant impact. — The Jakarta Post/ANN
