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Analysis: Waskita Karya defaults on bond payments, investors dump holdings

Jakarta Post - October 11, 2023

Tenggara Strategics, Jakarta – Indebted state-owned publicly-listed construction company PT Waskita Karya Tbk (WSKT) has caused jitters on the stock market after defaulting on Rp 941.75 billion (US$60.38 million) worth of bonds.

The State-Owned Enterprises Ministry scrambled to save Waskita by forcing state banks to agree to the company's 10-year restructuring plan, but private bondholders rebuffed the plan. Waskita's fate is now uncertain.

After failing in its negotiations with bondholders, Waskita had no choice but to default on the payment of interest and principal of the maturing 2018 Sustainable Bond III issue of Rp 941.75 billion, which came due on Sept. 28. Before this, Waskita also defaulted on two interest payments on the 2020 Sustainable Bond VI issue in May and August. Since then, the Indonesia Stock Exchange (IDX) has suspended trading of Waskita's shares.

Waskita has been saddled with a massive debt of Rp 84.31 trillion, most of it owed to state-owned banks, bondholders and vendors. As the debt brought Waskita to its knees, market sources said, bondholders dumped Waskita junk bonds at up to a 40 percent discount. They just did not see any possibility of their bonds getting paid in near future, especially after state-owned banks agreed to restructure Waskita's massive debt over 10 years.

Facilitated by the SOEs Ministry, debt restructuring negotiations between Waskita and state-owned banks went well, and all parties agreed to extend the maturity of the debt to 10 years. The restructured debt includes Rp 7.52 trillion from Bank BNI, Rp 4.55 trillion from Bank Mandiri, Rp 2.69 trillion from Bank BRI, and Rp 2.03 trillion from Bank Syariah Indonesia.

Waskita had held several meetings with bondholders, the last on Sept. 6, to negotiate its debt restructuring proposal, but the bondholders took a tougher stance. They simply refused to have their bonds restructured for maturity in 10 years. This eventually led to the default.

According to Deputy SOEs Minister Kartika "Tiko" Wirjoatmodjo, Waskita's financial problems started with the debt it took on to build major toll road projects: the Kayu Agung-Palembang-Betung toll road section, which is part of the Trans Sumatra toll road; the Bekasi-Cawang-Kampung Melayu (Becakayu) toll road in Jakarta; the Bogor-Ciawi-Sukabumi (Bocimi) toll road in West Java; and the Krian-Legundi-Bunder-Manyar (KLBM) toll road in East Java.

Because of Waskita's financial problems, the government transferred the completion and management of the toll roads to Hutama Karya, which has been tasked with selling the toll roads to investors. The money is to be used to salvage Waskita. To make the transaction smooth, the SOEs Ministry plans to transfer its 75 percent stake in Waskita to Hutama Karya.

Tiko said putting Waskita under Hutama Karta would prevent it from being delisted by the IDX. But the IDX said it had not been informed of the plan and would not resume trading of Waskita shares unless Waskita settled its debt with bondholders. Tiko agreed and said the government would only transfer its shares in Waskita to Hutama Karya when Waskita completed its debt restructuring. The default, however, complicates the plan.

What's more

The House of Representatives recently approved the government's proposal to inject Rp 18.6 trillion in Hutama Karya in 2024 so that it can complete Waskita's unfinished toll roads, particularly the Kayu Agung-Palembang-Betung toll section and the Bocimi toll road. As Waskita's unfinished toll roads have been transferred to Hutama Karya, the House cancelled a Rp 3 trillion injection for Waskita slated to be disbursed this year.

In addition to Hutama Karya, the House also approved a capital injection of Rp 6 trillion for another state-owned construction company, PT Wijaya Karta Tbk (WIKA), to complete its projects in the Nusantara Capital City (IKN) project in East Kalimantan. It also provided Rp 3.6 trillion for newly formed state-owned insurance holding company IFG Life to settle unpaid insurance policies of troubled state-owned insurer PT Jiwasraya.

In total, the House approved Rp 70.79 trillion in capital injections to 16 SOEs, including for disbursement in 2023. The SOEs that will receive the capital in 2023 include PT Hutama Karya, PT Bahana Pembinaan Usaha Indonesia, PT Sarana Multigriya Finansial, Perum LPPNPI/Airnav Indonesia, PT Aviasi Pariwisata Indonesia and PT Len Industri.

What we've heard

Asset management companies are currently selling the bonds of WSKT and WIKA at up to a 40% discount. These sales are being conducted by private asset management firms. Meanwhile, state-owned pension funds cannot sell bonds from these companies because it could lead to regulatory violations if they incur losses.

This has resulted in a situation where a significant amount of pension fund money is trapped, including those of Telkom and PLN, among many others. Additionally, these asset management firms are rushing to sell their bonds because they are afraid of being offered a swap from bonds to stocks in these companies.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2023/10/11/analysis-waskita-karya-defaults-on-bond-payments-investors-dump-holdings.htm