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Navigating antimonopoly rules in infrastructure SOE mergers
Despite the commercial benefits, mergers may result in increased market concentration that could harm competitors, consumers and the public.
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Work in progress: State-owned construction company PT Wijaya Karya Tbk is building a 7.3-kilometer toll road near the Nusantara capital city (IKN) in East Kalimantan. (Antara/PT Wijaya Karya)
State-Owned Enterprises (SOEs) Minister Erick Thohir announced a plan for a series of corporate actions, including mergers of infrastructure SOEs in mid-2023. The plan included three merger schemes, which involved seven infrastructure SOEs.
The first scheme is the merger of publicly traded PT Wijaya Karya with publicly traded PT Pembangunan Perumahan as the surviving entity, which will focus on the construction of seaports, airports, factories and residential buildings.
The second scheme is the merger of publicly traded PT Waskita Karya with PT Hutama Karya as the surviving entity, which will focus on the construction of toll and non-toll roads, government buildings and commercial residential buildings.
The third scheme is the merger of PT Nindya Karya and PT Brantas Abipraya with publicly traded PT Adhi Karya as the surviving entity, which will focus on the construction of water resources and railway infrastructure.
These series of mergers are motivated by multiple reasons; however, the two main ones are (a) reorganization for better corporate governance and efficiency and (b) improving cash flows and financial positions of the companies.
The reorganization manifested by mergers of the infrastructure SOEs is part of the 2024-2034 road map of the SOE Ministry and a master plan to reduce the number of SOEs to only 30 entities. Additionally, the cash flows and financial positions of several SOEs have increasingly become concerns that need to be addressed, with several infrastructure SOEs having debt-to-equity ratios of up to 400 percent and undergoing the suspension of debt payment obligations proceedings.
