Housing firm Perum Perumnas was the first to default on its medium-term note (MTN) principal worth Rp 200 billion (US$13.5 million) due on April 28. State printing company Percetakan Negara RI (PNRI) has also failed to pay the interest payments for its MTN listed on the Indonesia Stock Exchange (IDX) on May 11.

Additionally, flag carrier Garuda Indonesia is finding ways to restructure $500 million worth of global sharia-compliant bonds (sukuk) due in June, while utility firm PLN has informed banks about its problems meeting some loan repayment obligations due this year.

“With or without government assistance, SOEs are severely struggling at present. In the past, the government pushed SOEs — especially in the infrastructure sector — to seek funding event though their ratings are not very good,” said Ramdhan Ario Maruto, fixed income analyst at Anugerah Sekuritas.

The government has issued a new regulation that will allow the state to issue debts to finance business rescue packages, including for SOEs, as the pandemic is expected to hit the economy hard. The government has projected the worst-case scenario of seeing a 0.4 percent contraction this year, the lowest in two decades.

Read also: State developer Perumnas fails to pay due debt, sees rating downgraded to default

Construction firm PT Wijaya Karya (Wika) remains optimistic that it can repay Rp 6.2 trillion in debts due this year. However, if the pandemic lasts longer, the company will have to find new strategies to repay.

“We may ask our lenders for debt relaxations because a prolonged impact could affect our operational revenue,” Wika corporate secretary Mahendra Vijaya told The Jakarta Post.

For the time being, however, Mahendra said Wika was relying on its operational revenue to repay debts due this year and had no plans to seek financing from the market to refinance its debt.

“We believe that we can repay them this year,” he added.

Read also: Government issues regulation on economic recovery program, focuses on SOEs, MSMEs

The government may allocate around Rp 152 trillion for SOEs, nearly half of the Rp 318 trillion budget for its economic recovery program, according to a Finance Ministry document recently presented to lawmakers, a copy of which was obtained by the Post.

Investment for working capital has been budgeted at Rp 32.6 trillion for Garuda Indonesia, Perumnas and Krakatau Steel, among others, according to the document. State capital injections may amount to Rp 25.3 trillion for the likes of PLN and builder Hutama Karya. 

Institute for Development of Economics and Finance (Indef) economist Eko Listiyanto said funding and capital injections for SOEs were necessary as they played an integral role in the country’s economy.

However, he also believes that the move seemed like a way for the government to piggyback on “problematic” SOEs like Garuda and Krakatau Steel in the recovery program stipulated in Government Regulation 23/2020.

“They were having problems long before the pandemic and they were all caused by poor corporate governance,” said Eko.

Read also: Garuda, ‘severely affected’ by COVID-19, may restructure bonds: Minister

SOE Minister Erick Thohir shook up Garuda Indonesia’s management in January for better “good corporate governance” and “business ethics”. Erick said in March that the ministry had been in negotiations about the airline’s business conditions for more than a month, as the pandemic had diminished its income from umrah (minor haj) flights, as well as to and from Australia.

Though bailing out SOEs would help prevent a domino effect on other state-controlled firms and businesses, the move might not be such a good idea, Bloomberg Opinion columnist Shuli Ren wrote on Tuesday.

She said the country needed to establish a kind of separation like China did with its SOEs by allowing them to default, as bailing them would put more pressure on the country’s budget.

“If Jakarta starts to bail out its state enterprises, its investment-grade rating may vanish,” she warned. S&P Global Ratings revised Indonesia’s sovereign credit rating outlook to “negative” from “stable” at BBB, the lowest investment grade rating only a notch above junk level.

Read also: Rating agencies downgrade Indonesian companies on debt repayment concerns amid COVID-19

Several firms have already failed to pay their debts. Ratings agency PT Pemeringkat Efek Indonesia (Pefindo) downgraded Perumnas’ rating to selective default after its failure to pay a maturing MTN principal worth Rp 200 billion due on April 28.

Meanwhile, the Indonesian Central Securities Depository (KSEI) announced on May 8 that PNRI had yet to transfer interest payments to KSEI’s account on Monday 11.

“Given the situation, we inform you that payments to MTN holders that should have been made on May 11 have been postponed,” KSEI said in its notice.

Read also: Peruri affirms its financials are healthy

The debt paper, with a principal amount of Rp 145 billion, was issued in 2018. The MTN had a fixed coupon of 11.25 percent per year paid every three months until it would be due in 2021.

The government’s national economic recovery program will allow the state budget to inject capital into SOEs and place funds in certain banks so they can relax loan repayments. It will also allow the government to invest and guarantee certain businesses or projects, according to the government regulation.

 

Editor's note: In the article titled “State-owned enterprises scramble to repay debts in time”, published on May 14, we mistakenly referred to state-owned security and banknote printing company Perum Peruri. It is state printing company Percetakan Negara RI (PNRI) that failed to make interest payments on its medium-term notes (MTN), and not Perum Peruri. We apologize for the error.