(Bloomberg) -- Indonesia wants to return its state builders to solid footing after a decade-long spending spree saddled them with debt they’re now struggling to repay. 

President Joko Widodo’s infrastructure drive has burdened the country’s four-biggest listed construction firms with roughly 130 trillion rupiah ($8.6 billion) worth of debt, and PT Waskita Karya and PT Wijaya Karya have asked creditors to defer payment. Waskita, the largest, then said earlier this month it couldn’t pay a maturing bond. 

Their predicament highlights the extent to which real estate companies from South Korea to China are struggling with leverage that has the potential for knock-on effects for the financial sector. Indonesia has a long history of companies with bad debts, and its banks have been big lenders to the property sector. 

“With the complexity of the problem our estimate is it will take at least three years for this to be resolved,” State-Owned Enterprises Minister Erick Thohir said in an interview. 

As it stands, a total of more than 70 trillion rupiah is due to be restructured. 

To start with, the government will add more capital to construction firm PT Hutama Karya, and then have it buy Waskita’s projects so the latter can make delayed payments to contractors, according the minister. He didn’t give further details. 

More broadly, because the firms took on shorter-maturity debt for their long-term projects, the government will push builders to resort to project-based financing, Thohir said. 

“Each state infrastructure company will later do projects based on their expertise,” the minister said at his office in Jakarta. “They can’t take just any project and then bid for lower and lower price just for the sake of getting the contracts.”

Only after that will the government push for mergers among the state builders. 

“Slowly they can then transform into sister companies or we can merge them,” Thohir said.

Smaller companies like PT Nindya Karya and PT Indah Karya that are under state investment firms PT Danareksa and PT Perusahaan Pengelola Aset will be merged, he added.

Thohir is optimistic that creditors will agree to his plan, and is drawing lessons from the case of airline PT Garuda Indonesia, whose more than $9 billion pile of debt got restructured after the pandemic.  

But the past few months suggest officials could run into opposition. 

While Waskita has sought to restructure four bonds totaling 4.63 trillion rupiah, investors only agreed to the proposed terms for three of them. Wijaya Karya had said it seeks to delay payments on its bank loans which stood at around 20 trillion rupiah according to its first half financial statements.

Waskita has said it plans to hold meetings with the holders of those four bonds in September. Those four bonds have been rated default by PT Pemeringkat Efek Indonesia, or Pefindo, but the local ratings agency still assigned AAA rating on the other local currency notes issued by the company, according to data compiled by Bloomberg.

Banks have given “good signals” in conversations with the company, Thohir said. Negotiations with bondholders have also shown the parties are committed to reaching a “win-win solution.” 

--With assistance from Harry Suhartono and Fathiya Dahrul.

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