BPK Exposes Problematic Investments at PT Wijaya Karya
Jakarta — A report from Indonesia’s State Auditors (Badan Pemeriksa Keuangan/BPK) has uncovered serious problems in the financial management of PT Wijaya Karya Tbk. The audit found that investment decisions and loans to subsidiary companies did not take into account their ability to repay, thereby straining cash flow and worsening the company’s financial condition.
In its audit report on financial management and accountability through the first half of 2024, the BPK recorded that PT Wijaya Karya (WIKA) suffered a consolidated loss of Rp7.82 trillion in the audited financial statements for 2023. This loss comprised Rp4.41 trillion from the parent company and approximately Rp3.41 trillion from subsidiary companies.
The BPK’s findings revealed that loans and investments made by the parent company to various subsidiary entities were not matched with adequate returns. As a result, the company’s financial burden continued to increase whilst incoming cash flow was insufficient to cover obligations.
The audit also noted that the rate of loan repayment from subsidiary companies was extremely low. As of October 2024, total loan repayments amounted to only approximately Rp164 billion, equivalent to 1.13 per cent of the value of loans provided. This situation created an imbalance between cash inflow from subsidiary companies and interest payments that the company had to bear to creditors.
The situation was exacerbated by a sharp increase in interest expenses. Audit data showed that WIKA’s interest burden increased dramatically over recent years, rising from approximately Rp787 billion in 2018 to more than Rp1.75 trillion in 2023.
Additionally, the company’s debt servicing capacity ratio (DSCR) declined drastically, from 0.56 in 2018 to just 0.01 in 2023. This figure reflects the company’s very limited ability to meet debt obligations from operational cash flow.
Problems also emerged from the structure of the company’s investment financing. The BPK found that some long-term investments in subsidiary companies were financed using short-term debt. This condition increased liquidity risk because obligations matured more quickly than the potential investment returns.
The BPK also noted that the majority of the company’s assets were illiquid. Approximately 70.69 per cent of WIKA’s assets comprised long-term assets, including investments in the Jakarta-Bandung High-Speed Railway project and equity participation in subsidiary companies.
Furthermore, some subsidiary companies had not paid dividends to the parent company since 2018 despite continuing to receive financing support from the parent company.
The audit concluded that these conditions demonstrated weaknesses in oversight and investment decision-making. The board of commissioners was deemed ineffective in supervising loans and equity participation in subsidiary companies.
The company’s management from 2018 to 2023 was also considered insufficiently careful, as it failed to apply the principle of prudence, did not conduct adequate evaluation and monitoring of investment returns, and did not take sufficient risk mitigation measures.
Consequently, the investments made have not provided optimal financial benefits to the company; instead, they have increased pressure on the parent company’s financial condition.
Based on these findings, the BPK recommended that the board of commissioners strengthen oversight of loan and investment policies to subsidiary companies. Management was also asked to improve guidelines for loan provision, strengthen evaluation of investment returns, and implement risk mitigation measures against low returns from subsidiary companies.
In its response, PT WIKA’s management stated its agreement with the BPK’s recommendations and committed to implementing improvements through updated policies on loan and investment management to subsidiary companies.