Indonesia Construction: Buoyant view on housing holding formation
Event
- Yesterday Wijaya Karya (WIKA) EGMS approved the decision to join housing holding under Perum Perumnas (Persero) control, which required WIKA to relinquish its SOE legal status. The government regulation regarding the formation of the holding is expected to be issued at the end of this week.
What are the implications for WIKA and PTPP as the member of housing holding?
- Better alignment of long-term goals. In the long term, housing holding is expected to assist Ministry of Public Works and Public Housing (KemenPUPR) in achieving One Million Houses Program to reduce housing backlog, which has been initiated since 2015. However, the formation of the holding is not intended to prohibit its members from executing infrastructure projects in the future.
- Plenty room for growth as housing backlog still robust. Housing backlog is currently stood at 11.3mn units in 2018, still far above National Medium-Term Development Plan (RPJMN) 2019 target of 5.4mn units. WIKA and PTPP have already seen this opportunity, as WIKA plans to develop 4 TOD superblocks that will be integrated with Jakarta-Bandung High Speed Railway projects, while PTPP is currently focusing on developing low income housing (MBR Rusunami).
- Value creation through financing capacity building and business synergies. Holding formation will enable its members to strengthen their financing capacity, which will lead to better position in obtaining higher credit rating and lower cost of fund. Moreover, it’s expected to create efficiency through value chain integration, which will result in higher business synergy level and less competition between them.
- More flexibility in executing corporate action. Previously, any corporate action must be approved by the house (PP 33/2005 art. 3). Now, its rumored that they will only need government approval to do so, avoiding unnecessary long and tedious administrative procedures in the future.
- All in, we continue to like WIKA and PTPP, as we expect the housing holding formation will improve their profitability without conflicting with their long-term strategy, while still giving them operational flexibility in the process.
