Construction SOEs at a crossroads

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia - BUMN karya di simpang jalan

19 February 2025

By Dionisio Damara and Fahmi Ahmad Burhan

Infrastructure development, which has been a cornerstone of economic growth in Indonesia, is now encountering significant challenges.

Construction State-owned Enterprises (SOEs), which spearhead national strategic projects, are under immense pressure due to a combination of debts, lack of new contracts, and budget reductions, further worsening their financial situation.

The situation with PT Wijaya Karya (Persero) Tbk (WIKA), which failed to pay its mature bonds and sukuk worth Rp1 trillion on Tuesday, exemplifies the crisis facing the sector.

The situation has compelled the Indonesia Stock Exchange (IDX) to temporarily halt all trading of WIKA's shares, indicating serious issues with the company's business continuity.

Wijaya Karya Corporate Secretary Mahendra Vijaya stated that, amid the current economic conditions and business transformation, WIKA still requires time to settle its financial obligations.

“The company has proposed a partial payment of the principal due and an extension of the remaining principal while continuing to pay the interest according to the amount and schedule in the agreement. However, the proposal has not yet reached a quorum to make a decision,” he stated on Tuesday (18/2).

However, WIKA is not alone. All construction SOEs are currently at a crossroads, struggling with financial pressures while attempting to transform for recovery. In this context, the merger of construction SOEs has emerged as a strategic option, but it is not without challenges.

The state-owned construction industry has been dealt a heavy blow following the government's announcement of budget efficiency measures, which include a drastic reduction in infrastructure funding. The indicative budget ceiling for the Public Works Ministry in 2025 is only Rp50.48 trillion, a reduction of Rp60.47 trillion from the initial budget ceiling of Rp110.95 trillion.

This reduction in new projects for construction SOEs impacts their revenue and cash flow. This year, WIKA has yet to secure new contracts, reflecting a lack of cash flow that could result in WIKA failing to settle its due bonds and sukuk.

Single entity

Under this pressure, the SOE Ministry is planning to merge construction SOEs. Initially, the plan was to consolidate seven companies into three, but now the aim is to form a single large entity.

SOE Minister Erick Thohir mentioned that the scheme is still under study and is expected to be finalised in the next two or three months. The merger plan was revised due to the reduction in state expenditures for budget efficiency.

"It is not impossible for the efficiency of the construction SOE merger to continue, from three to two to one. Yes, this needs further studies," he said during a work meeting with House of Representatives (DPR) Commission VI on Thursday (13/2).

However, the merger is not without challenges. SOE observer Herry Gunawan believes that a merger without comprehensive restructuring risks transferring the financial burden from weaker entities to healthier ones.

Without proper management, a merger can create an imbalance in the new business ecosystem.

"Construction SOEs that are severely distressed must enter the clinic [of PT Perusahaan Pengelola Aset/PPA]. They cannot be directly merged to avoid contagion," Herry stated.

Similarly, Panin Sekuritas Research Analyst Aqil Triyadi stated that consolidation must be accompanied by efforts to manage debts, optimise cash flow, implement corporate governance, and enhance cost efficiency.

Meanwhile, Kiwoom Sekuritas Indonesia Research Head Sukarno Alatas stated that the merger will be a gamble for construction SOEs. If successful, it presents an opportunity to create more optimal synergy.

"The main challenge is the extent of the merger, along with other factors such as cash flow and operational efficiency," Sukarno revealed.

Next article: Transportation access is key to alleviating poverty

Previous