JAKARTA (TheInsiderStories) – Support for Indonesia’ state-owned enterprises (SOEs) from the Indonesian government (Baa2 stable) is likely to become more selective due to coronavirus disruptions, weighing on the companies’ credit quality.
We reviewed our government support assumptions for the rated Indonesian SOEs in light of recent defaults by a few state-owned and controlled companies, and expect government support will be more differentiated across SOEs in form and timeliness than we had initially factors into our ratings.
This differentiation comes as the government rationalizes available resources between containing the coronavirus pandemic and supporting priority industries, with support going forward likely to be primarily in the form of debt restructuring or refinancing with state-owned banks, instead of equity injections.
An expectation of direct cash injections to companies, when needed, had underpinned Moody’s earlier support assumptions. Coronavirus-induced disruptions have drastically reduced SOEs’ earnings and debt serviceability.
Many companies were already highly leveraged after having doubled their outstanding debt over the last four years. Additionally, liquidity had been weak before the outbreak, and most SOEs will likely need to rely on refinancing, or in some cases, reprofiling of debt.
However, the Indonesian government’ strained fiscal position has dampened its ability to support its SOEs. Lower growth in the coronavirus economy, a wider fiscal deficit from stimulus spending and currency depreciation will contribute to a rise in the government’s own debt burden.
SOEs likely to receive very high government support include wholly government-owned companies or those with government-guaranteed debt, such as PT Perusahaan Listrik Negara or PLN (Baa2 stable) and PT Pertamina (Baa2 stable), which operate in strategically important sectors with dominant market shares, as well as PT Hutama Karya (Baa3 stable).
While, partially owned SOEs or those operating in competitive sectors, including PT Jasa Marga Tbk (Baa3 negative) and PT Wijaya Karya Tbk (IDX: WIKA) (Ba3 negative), are less likely to receive support. The SOEs play a pivotal role in furthering public policy objectives across Asia Pacific (APAC). Its also pose contingent risk to government balance sheets.
The contentious rhetoric about the increasing of SOEs debt has been broadly discussed among observers and economists. Indeed, the debt of the red-plate companies has continued to swell. The main factor is infrastructure development debt which is from the Joko Widodo government’ strategic program.
The total SOEs debt in the non-financial sector has reached Rp1,980 trillion (US$140.42 billion). While banking activities, assets and liabilities or third party funds recorded Rp3,000 trillion. So, the polemic about the swelling of SOEs debt which reached Rp5,000 trillion is true because the valuation has been calculated by the amount of banking activity.
Based on government data until May 2020, total debt of SOEs and private companies worth of US$205.5 billion from the total debt $389.3 billion. The SOE’s with the largest debt includes PT Bank Rakyat Indonesia Tbk (IDX: BBRI) over than Rp1,000 trillion, PT Bank Mandiri Tbk (IDX: BMRI) Rp997 trillion, and PT Bank Negara Indonesia Tbk (IDX: BBNI) Rp660 trillion.
Then, PLN Rp665 trillion, Pertamina Rp522 trillion, PT Bank Tabungan Negara Tbk (IDX: BBTN) Rp249 trillion, PT Taspen worth of Rp222 trillion, PT Waskita Karya Tbk (IDX: WSKT) Rp102 trillion, PT Telkom Indonesia Tbk (IDX: TLKM) Rp99 trillion, and PT Pupuk Indonesia is Rp76 trillion.
Its crucial for the government and stakeholders to monitor the financial performance of SOEs. The balance sheets of the state companies have been criticizing by various parties. The spotlight is on the swell debt of the SOEs caused by the government infrastructure development, but the return was still obtained for a long time. Problems occur when projects are delayed or when they require time to generate revenue.
–some part added by TIS Intelligence Team
by Nidhi Dhruv, a Moody’s Investor Service VP and Senior Analyst