According to the Law of the Republic of Indonesia No. 19/2003, BUMN is a business entity who’s owned by the state. In other words, BUMN is part of the state assets.
These state assets may be sold to other parties, we know this as privatization (Cons of No. 19/2003 chapter 1:12).
After privatization through IPO, public investor will be able to buy the stake.
Until now, many BUMNs have listed their company in the Indonesia Stock Exchange. There is an index called IDXBUMN20 containing 20 listed companies consisting of BUMN, BUMD and their affiliates.
As of October 1, 2022, the total market capitalization of the 20 shares that are members of IDXBUMN20 is IDR 2.08 trillion, or the equivalent of 13% of the total capitalization of the Jakarta Composite Index (IHSG).
Three of them have a very large market capitalization value. These include Bank BRI (Rp 685 trillion), PT Telkom (Rp 446 trillion) and Bank Mandiri (Rp 426 trillion).
With a large proportion of the overall IHSG, BUMN shares are often referred to as “Stock Exchange Movers”, because the rise and fall of the IHSG can be directly affected by drastic changes in the price of the same BUMN.
Because of this huge impact, investors throughout Indonesia often eagerly await the IPO of BUMN or its subsidiaries and affiliated companies, while harboring hope that there will be extraordinary BUMNs capable of recording performance like BBRI, TLKM, or BMRI.
BUMN shares are also seen as more juicy, because there is a clear bond with the government as owner-controller, which is always on standby with cash reserves if at any time the company needs capital injections.
A number of state-owned companies often receive financial assistance from the government through the State Revenue and Expenditure Budget (APBN) and State Capital Participation (PMN).
As of 5 July 2022, Commission VI of the DPR RI has approved the PMN proposal for BUMNs for the 2023 fiscal year of IDR 73 trillion.
Besides that, BUMN companies are also seen as the main vendors of tender offers if there are projects proposed by the government. After all, BUMNs are “insiders” in every project run by the government. This is considered to have major impact on the bottom line of the BUMN business itself.
Good track record on the stock exchange, injection fund that is always available, and the main choice in every government tender offer. Three points that can make BUMNs the prima donna for capital market players in Indonesia, both new and experienced players.
But the author has another view. The luxury mentioned above will not be achieved without a price to be paid.
If something is too good to be true, it usually is!
Sure enough, the privileges obtained by BUMNs are not necessarily zero risk. There are sacrifices that are forced to be made by state-owned companies, which are closely related to the running of the government.
Less Economical Projects for Public Benefits
Basically, a business entity is formed with the aim of creating value for shareholders. Unfortunately, the status of BUMN is actually the biggest obstacle to this mission.
BUMNs must comply with government policies. Among the tasks assigned by the government, there is one social duty that is inherent in every BUMN, namely to help carry out the function of public benefit. Regulated in the UU No. 19/2003 pasal 66 ayat 1.
Thus, in general, government projects assigned to BUMNs are not economical. The most prominent example can be seen from the limited space for the BUMN Karya (ADHI, PTPP, WIKA, WSKT) to maneuver.
One of them was Waskita Karya (WSKT), which last year was assigned to complete 12 toll roads, with the big challenge of completing existing toll road projects such as the Becakayu Toll Road, Bocimi Toll Road, and Kapalbetung Toll Road.
Meanwhile, WSKT’s financial condition has never improved after bleeding due to the COVID-19 outbreak.
Since 2020, WSKT’s interest-bearing debt has never been less than 5 times the amount of equity. In fact, at the end of 2021 WSKT had conducted a Right Issue with a fantastic value of 9.4 trillion rupiah.
“In our assignment we don’t talk about profit motives. There are areas where we sacrifice that SOEs don’t perform financially, but PMN projects deliver economically, or generate new economic transactions.”
Dodok Dwi Handoko — Tenaga Pengkaji Restrukturisasi, Privatisasi, dan Efektivitas Kekayaan Negara
Still optimistic about “government projects”?
Mandatory deposit called dividends
Making profits in the government conglomerate ecosystem is already difficult, plus the government routinely extorts cash flow against BUMNs, just to increase the length of the government’s breath.
For most BUMNs, investment for future is just wishful thinking. How can you focus on the future? Just a little profit is immediately taken by the Government.
When BUMNs generate profits, the allocation of funds that must be secured first is maintenance capex. After that, executives must be able to do careful calculations in determining expansion capex to pursue future growth. The rest, the remaining profits will be absorbed by the government to help the state treasury in the form of dividends.
But remember, the government will not necessarily comply with the expansion capex. Often the determination of profits to be absorbed as dividends is carried out at the earliest, leaving little left for the company to carry out maintenance.
We can see in 2020, when many private companies skip paying dividends, state-owned companies are still forced to pay dividends to shareholders. Of course, the government needs additional fresh funds to save the country from the COVID-19 outbreak.
Many capital market players are happy with the habit of distributing dividends.
It is clear that paying dividends —or what the authors like to call Partial Liquidation— is no different from sacrificing future growth.
For example, TLKM companies that are very capital intensive actually have to routinely distribute dividends of around 80% of profits, leaving only 20% for maintenance.
Apart from TLKM, PT Bukit Asam (PTBA), which is a subsidiary of BUMN, also has a similar fate. After the acquisition by INALUM, PTBA lost its “fangs” for reinvestment because it was made a “cash cow” by its parent company in the Freeport nationalization mission from 2017-2019. In previous years, PTBA only distributed a maximum of 35% of profits as dividends.
Surprisingly, PTBA was asked to share all of last year’s profits in the form of dividends.
A nightmare for long term investor!
Complicated Rules
It’s no secret that BUMNs are often involved in the complicated bureaucracy that prevails in Indonesia.
Independence is a luxury for BUMN entities. It’s no secret that BUMNs are often involved in government intervention in their journey. As well as the obligation to comply with the complicated and convoluted bureaucracy which tends to be more numerous.
As in banking, if private banks are regulated by 3 laws, state-owned banks are regulated by 8 laws.
Apart from that, in 2020 banks with BUMN status were also involved in helping distribute loans to other state-owned entities, which are clearly economically insecure, such as BUMN Karya (ADHI, PTPP, WIKA, WSKT).
Limited independence forces creativity to stop. Never mind dreaming of expanding abroad, even increasing revenue every year is a difficult thing.
In the end, in Indonesia the status of BUMN will always burden the company’s growth. For companies that routinely record net losses, of course the status of BUMN and the ease of obtaining additional capital is a good thing. However, for strong state-owned companies such as Trio Bank BUMN, TLKM, and other potential companies, growth will always be stifled under ties to the state.
Profitable companies, profits will be cut to finance the state treasury. Companies that want to expand, are held back by the difficulty of bureaucracy and legislation.
Never mind wanting profit or expansion, just earning rupiahs is already difficult enough for them to being forced to accommodate projects that’s not economical. Plus the need to take bad debt from other BUMN entities.
For a solution to the last complaint, BUMN must be able to build competitiveness and find potential customer from outside the BUMN entity or other affiliated entities. So that the journey to gain profit and expansion will not just be a wishful story.