Jakarta. Stock values in state-controlled construction companies plunged over the past three months as investor confidence has eroded due to cash flow problems and an absence of stimulus funds from the government due to weak national tax revenue.
Shares of PP, Wijaya Karya, and Waskita Karya, all state-controlled companies, lost about a fifth of their value from July 11 to Oct. 11, while Adhi Karya shares dropped 6 percent in the same period.
"Despite these companies positive balance sheets and numerous tender projects in the first half this year, they are currently facing hurdles due to negative cash flow that has affected them for the past year," Alfred Nainggolan, an analyst at Koneksi Kapital, told the Jakarta Globe on Wednesday (11/10).
PP reported a negative operating cash flow of Rp 2.17 trillion ($165 million), compared to a negative cash flow of Rp 2.23 trillion in the corresponding period last year. Wijaya Karya also recorded a negative operating cash flow of Rp 2.18 trillion in the first half this year, down from a negative Rp 2.3 trillion in the same period last year.
Waskita Karya recorded a negative operating cash flow of Rp 4 trillion in the first half this year, following a negative cash flow of Rp 5.91 trillion in the same period last year. Peer Adhi Karya posted a negative operating cash flow of Rp 2.21 trillion in the first six months this year, up from Rp 1.73 trillion in the same period last year.
The construction companies, in order to keep paying their bills from suppliers, are in desperate need of cash injections either from bank loans or bonds to keep afloat in the face of weak revenue generated from existing projects.
For investors, that could also mean that companies strapped for cash might be unable to pay out dividends.
"There is growing pressure from the government to these companies in speeding up the infrastructure work [...] the government does not give them a clear financing scheme. Some of these companies apparently are still waiting for their capital injection from the government," Alfred said.
According to Adhi Karya president director Budhi Harto last month, his company is still waiting for a capital injection of Rp 2 trillion that is expected to be disbursed in November by state-owned Kereta Api Indonesia, as part of the payment fee to handle Light Rapid Transit (LRT) construction work around the capital.
The government has been struggling to finance the ambitious infrastructure development amid a limited tax revenue. The government only collected Rp 770.7 trillion in taxes as of the end of September -- 60 percent of its target for 2017.
This requires state-controlled companies to find other alternatives for financing, Reza Priyambada, an analyst at Binaartha Sekuritas, said.
"The government's capital injection has an unclear scheme. At first it was giving positive sentiment for these companies' shares, but later the government pushed the companies to find other alternative financing schemes and reminded them to not solely depend on capital injection," said Reza.
Jasa Marga Sets Example
In contrast, shares of state-controlled toll road operator Jasa Marga rose by 17 percent from July 11 to Oct.11. Investors' optimistic outlook towards Jasa Marga is largely due to the company's positive cash flow and its capability to leverage its assets, Alfred said.
Jasa Marga has numerous toll road units that it could sell or turn into alternative sources of financing to fund the government's infrastructure projects. In late August, Jasa Marga issued an asset-backed collective investment contract, known as KIK-EBA, backed by its own toll road. The toll road operator managed to raise Rp 2 trillion from the issuance.
But, turning assets to cash is not always easy. Waskita Karya's plan to divest some of its toll roads unraveled last month as the company could not agree to prices offered by several investors. The company still plans to sell toll roads or alternatively push subsidiary Waskita Toll Road to undertake an initial public offering (IPO) in the first half 2018.
Holding Company Unclear
The government also plans to restructure construction companies under holding companies to boost their efficiency, value and debt leverage. Under the plan, Hutama Karya, another state-owned construction company, will become the holding company of construction and toll road firms, including Wika, Adhi Karya, Jasa Marga and others.
"The government might not put its priority to form holding companies for state construction companies, which undermined investors' confidence," Alfred added.
Previously, State-Owned Enterprises Minister Rini Soemarno said her team is completing the necessary paperwork to form a holding company for state-owned mining enterprises, which is expected to be completed by November this year.
Alfred said to improve investors' confidence, the government needs to offer a clear scheme for these companies to finance infrastructure projects and to accelerate capital injection to each of the companies.
"No more payment delay for the companies. The Finance Ministry, the Regional Development Planning Board and other government institutions need to collaborate to give assurance to investors by making clear financing schemes, while also creating other alternative sources of financing," Alfred said.