📚 Acrostics Anatomy: Indonesian SOE State of Play
An analysis connecting the dots across Indonesian sovereign fund Danantara and the state-owned enterprises under its watch.
Danantara gave loans to flag airline Garuda Indonesia, steel maker Krakatau Steel and pharmaceutical company Kimia Farma.
Danantara can transfer some dividends from the healthier SOEs to support their ailing peers, but this is like a whirlpool unless the fund can get third-party capital.
Concerns about Indonesia’s widening deficit risk pushing up borrowing costs for Danantara in the international markets.
Within less than a year since Danantara was launched, the Indonesian sovereign fund has rescued several troubled state-owned enterprises (SOEs) in its portfolio.
Danantara stepped in with an overall injection of USD 1.4 billion into Garuda Indonesia, which is aimed at reactivating the flag airline’s grounded planes and plugging its negative equity.
Under the fund’s oversight, Garuda also reshuffled its management and moved to write off some aircraft assets that had weighed down its balance sheet.
On 19 December 2025, Danantara Asset Management signed an agreement to provide a IDR 4.935 trillion (USD 295 million) shareholder loan to Krakatau Steel, according to its stock exchange filing.
Of that amount, IDR 4.18 trillion is a working capital loan with a minimum tenor of five years, while the rest is to fund a voluntary resignation program.
As part of the deal, the state-owned steel maker pledged assets – including mortgages, inventories and receivables – worth IDR 13.94 trillion (USD 825.2 million) to Danantara. This implied a security coverage of nearly three times.
In the pharmaceutical sector, Danantara gave a IDR 846 billion (USD 50 million) loan to Kimia Farma via state-owned holding company Bio Farma, CNBC Indonesia reported, citing a statement dated 8 January 2026.
Kimia Farma’s subsidiary, Kimia Farma Apotek, reportedly signed a master restructuring agreement with five banks on 16 December 2025.
The 10-year restructuring agreement with Bank Negara Indonesia, Bank DKI, Bank Syariah Indonesia, Bank Muamalat Indonesia and Bank Central Asia should allow business continuity for Kimia Farma Apotek, according to its statement. Deloitte was the company’s financial adviser.
Indonesian law firm Assegaf Hamzah & Partners (AHP) – which advised Bio Farma on the loan restructuring – said the combined transactions addressed debt exposures of around IDR 4.5 trillion at Kimia Farma and IDR 1.4 trillion at Kimia Farma Apotek.
SOE Supremo
I wrote in September 2025 that Danantara reigns supreme over the restructurings and consolidations of Indonesia’s sprawling SOEs.
While Danantara’s goal to slim down the number of SOEs from as many as 1,050 to around 200 was a step in the right direction, I flagged that the fund may eventually run into a similar challenge faced by distressed asset manager Perusahaan Pengelola Aset (PPA) to resolve the underlying bad debt.
I also wrote in April 2025 that a revised law that decoupled SOE losses from the state should theoretically remove the threat of criminal prosecution hanging over the bankers handling these soured loans, but in reality few wanted to be the “guinea pig” on worries that they could still be brought down by potentially conflicting laws or regulations.
In short, the fundamental problems in Indonesia’s SOE sector remain the same:
Loss-making SOEs that cannot raise funds on their own are still dependent on the state – now represented by Danantara – to prop them up.
Some state-owned bankers stick to kicking the can down the road rather than taking a haircut.
Dividend Whirlpool
While the more established SOEs like energy giant Pertamina, electricity distributor Perusahaan Listrik Negara (PLN) and mining holding company MIND ID should be able to borrow independently, Danantara cannot collect taxes or print money to keep the ailing SOEs on perpetual life support.
Danantara can transfer some dividends from the healthier companies to support their distressed peers, but this is effectively like a whirlpool unless the fund can get third-party capital from outside the SOE complex.
I flagged last year that while some banks would be willing to lend to Danantara to build a relationship with the repeat borrower, they may put in place quasi-security protections, such as tying the loan drawdown to certain projects or installing an offshore cash account management agreement (CAMA).
I noted that offshore bondholders may not have a similar latitude for structural workarounds, so the key question is whether they would be willing to be repaid after the banks.
IFR reported in November 2025 that Danantara had launched the syndication of a USD 1 billion-equivalent loan with a tenor of three years. President Prabowo Subianto’s five-year term would end in 2029 unless the former military general is re-elected.
Offshore Currents
I wrote in late 2024 that Danantara’s grand design was to leverage up the pool of Indonesian SOEs to get a cheaper cost of capital. I also noted that international investors and rating agencies were likely to peg Danantara to the sovereign – the only potential variance is whether it would be equalized or notched down.
Proponents say that Danantara’s legal standing as a sovereign entity is enshrined in Indonesia’s revised SOE Law and there’s no way the president would let his flagship fund go down. But critics believe that Danantara is not of equal standing to the Finance Ministry and the fund’s borrowings do not carry a state guarantee.
This week, Indonesia sold USD 2.7 billion of sovereign bonds with tenors of five to 30 years, Bloomberg reported. The notes were sold in three parts and the longest portion of the deal was a USD 500 million tranche due in 2056 that yields 5.5% after an initial price talk of around 5.8%.
However, Citigroup reportedly predicts that Indonesia would breach a 3% legal cap on its deficit this year, as the government ramps up spending on its free meals program and post-floods rebuilding. The bank raised its budget deficit forecast to 3.5% of gross domestic product in 2026, from an initial estimate of 2.7%.
Concerns about Indonesia’s widening deficit risk pushing up the international borrowing costs for Danantara, which is considering the issuance of global bonds to diversify its sources of funding. Nevertheless, the fund can pull a few levers to create some buffer against the offshore currents.
The state-owned banks and telecommunication operator Telekomunikasi Indonesia have been upstreaming relatively stable dividends over the years.
Danantara also raised around USD 3 billion by selling low-yield “patriot bonds” to local tycoons in late 2025 and was reportedly preparing to issue a second batch of domestic notes worth an additional IDR 12.6 trillion (USD 747 million).
High Costs
Indonesian SOEs have long been interconnected via a web of criss-crossing relationships, including bank and trade debt.
As I pointed out in October 2025, this SOE circularity is not isolated to the Southeast Asian nation. In China, the local governments also used financing vehicles to raise off-balance-sheet debt that was taken up by state-owned banks and other domestic investors.
Danantara is trying to do the right thing by professionalizing the practices of the SOEs under its watch, according to three friends who have dealt with the Indonesian fund. Some SOE officials have “upped their game” after Danantara entered the picture, one of these friends said.
Nevertheless, there’s valid criticism that the SOE brigade led by Danantara risks crowding out the private sector and diverting capital away from business objectives.
Some may also argue that the cost – and opportunity cost – of propping up sick SOEs for the sake of nationalism are too high for Indonesia to continue paying.