Allegations of corruption at PT Waskita Karya Persero Terbuka, Indonesia’s state-controlled construction firm, have raised questions about the company’s finances, and the adequacy of board oversight.
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper at the situation at PT Waskita Karya Persero Terbuka. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts May 22 — May 26, 2023
5/22 B&S Group SA; Controversy Alert issued 5/9
5/23 Société Générale; issued 5/5
5/23 The Restaurant Group plc; issued 5/9
5/23 Restaurant Brands International Inc.; issued 5/8
5/24 Amazon.com, Inc.; issued 5/10
5/25 SCOR SE; issued on 5/11
5/25 PT Bukalapak.com Tbk; issued 5/11
5/25 PT Waskita Karya Persero Terbuka; issued 5/10
5/26 Nuvei Corporation; issued 5/9
Deep Dive: PT Waskita Karya Persero Terbuka
From quasi-public utilities to national champion airlines, state-influenced companies don’t necessarily fit the typical governance mold. But they usually stand out because the board and management are primarily responsible to the state, rather than to the markets. In the case of PT Waskita Karya Persero Terbuka, some executives may ultimately answer to the police.
The company’s President Director, Destiawan Soewardjono, was detained in late April 2023 after being named by the Attorney General’s Office of Indonesia as a suspect in a corruption case involving irregularities or misuse of funds by the company’s Beton Precast subsidiary between 2016 and 2020. Despite only taking up the President Director role in June 2020, Destiawan allegedly played a role in ordering and approving the use of fake supporting documents to disburse supply chain financing funds. These funds were ostensibly used to pay off debts on fictitious projects and vendors.
Other suspects in the case include executives and employees of PT Waskita Karya and its Beton Precast subsidiary, along with the owner of PT Pinnacle Optima Karya, who allegedly helped facilitate the laundering and disbursement. Indonesia’s Audit Board calculates the state’s financial losses as Rp 2.5 trillion, around USD 170 million. Investigators have also confiscated various real estate assets and Rp 95 billion in cash (roughly USD 6.4 million).
PT Waskita Karya has faced financial difficulties due to a combination of internal and external factors, and the allegations have exacerbated material uncertainty relating to the company’s going concern status. Being Indonesia’s state-owned construction company, it was due for state financing amounting to Rp 3 trillion (around USD 200 million) for the 2022 year. However, as reported in May 2023, the Minister of Finance has paused distribution of the funds due to the scandal.
Concern about the use of state-owned companies in government projects and their susceptibility to corruption has raised questions about the procurement process and the need for greater transparency and accountability in government infrastructure projects. Notably, the majority of PT Waskita Karya’s Board of Commisioners are not considered independent by the company itself, and the other commissioners all have material relationships that raise questions about their own independence – and, in turn, the adequacy of current oversight structures.
Details regarding the identity of board nominees at the upcoming meeting are sparse. That’s customary for the Indonesian market, despite calls for more transparent election disclosure in the Financial Services Authority’s Corporate Governance Roadmap. As a result, minority shareholders are being asked to blindly approve the company’s oversight in the face of what appear to be significant longstanding failures. However, despite the scandal, there isn’t much suspense about the result – the state controls 75% of the company’s issued share capital.
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