Fitch Affirms Hutama Karya at 'BBB-'/'AA+(idn)'

(Fitch Ratings - Jakarta/Singapore - 16 Mar 2026)--Fitch Ratings has affirmed Indonesia-based PT Hutama Karya (Persero)'s (HK) Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Negative Outlook and its USD600 million government-guaranteed notes at 'BBB'. At the same time, Fitch Ratings Indonesia has affirmed HK's National Long-Term Rating at 'AA+(idn)' with a Stable Outlook.

The government-related construction company's rating is notched down from the sovereign rating of Indonesia (BBB/Negative) as we "look through" the direct owner, Indonesia's sovereign wealth fund, Danantara, while applying Fitch's Government-Related Entities (GRE) Rating Criteria. The notching down is underpinned by our belief that exceptional support from the government is extremely likely, as we believe the government has 'Very Strong' responsibility and 'Strong' incentives to support HK. The Negative Outlook reflects that on the sovereign.

HK's USD600 million notes are rated at the same level as the sovereign IDR, reflecting the state's unconditional and irrevocable guarantee.

HK's Standalone Credit Profile (SCP) of 'b-'/'bb(idn)' reflects its weak financial profile with thin interest coverage. However, this is counterbalanced by limited refinancing risk.

'AA' National Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country's highest rated issuers or obligations.

Key Rating Drivers

'Very Strong' Precedents of Support: Our assessment is driven by the fact that the government guarantees all of HK's debt incurred for the state-mandated Trans Sumatra project, and more than 60% of HK's total debt at end-2025. The government also guaranteed an IDR13.6 trillion syndicated loan in January 2026 for the Jambi-Betung toll road, part of Phase Two of the Trans Sumatra project.

Fitch expects the government's priority shift away from infrastructure construction and towards the free-lunch programme and downstream mineral projects will continue to result in uncertainty around future equity injections into HK. The company received no state injections in 2025, down from IDR18.6 trillion in 2024 and over IDR131 trillion since 2015 - the highest amount for any state-owned contractor. The government's tangible support for HK has included recurring equity injections, construction support and asset securitisation.

'Very Strong' Decision-Making and Oversight: The government, through Danantara, controls HK's investment decisions, strategy and operations, with close oversight of the board of directors and commissioners. It also closely monitors HK's execution of the highly strategic Trans Sumatra project. We view government oversight as unchanged after the ownership transferred to Danantara in 2025, as we generally "look through" the intermediate holding company for government investments when we believe a GRE has strong government links and plays a public policy role.

'Strong' Contagion Risk: We believe a default by HK would affect access to and cost of funding for the sovereign and other GREs, as the government guarantees a significant share of HK's debt. This would give rise to reputational risk, as a default would undermine investor confidence in the state's ability to support other GREs. The assessment also reflects the size and extensiveness of HK's borrowings.

'Strong' Preservation of Government Policy Role: A HK default would disrupt the development of public infrastructure, as HK is a key state-owned contractor mandated to build strategic infrastructure. Fitch estimates strategic projects made up about 69% of the order book at end-2025. At the same time, HK has lower importance than essential service providers, such as for food or energy. Other state builders are also available to substitute for HK's construction services, if needed, over the medium to long term, limiting the potential disruption of national infrastructure projects.

Weak Interest Coverage: HK's financial profile and flexibility are undermined by its thin interest coverage. We project EBITDA interest coverage to fall around 1.5x in 2026-2027 (2025: 1.9x), as we expect EBITDA to decline to below IDR3.5 trillion (2025: IDR3.7 trillion) with a slowdown in new contracts. We believe HK's large order book of around IDR60 trillion at end-2025 will support its construction segment for the next few years. HK will also benefit from rising contributions from its toll road operation, which are recurring and higher margin.

Growth to Moderate: A slowdown in Indonesia's infrastructure investment has put pressure on HK's core infrastructure construction business. However, HK is leveraging its construction capabilities to gain contracts in government priority areas, which helps to offset the slowdown. We expect annual new contracts to decline to about IDR10 trillion from 2027 (IDR18 trillion: 2025 estimate), after the completion of HK's ongoing work on the Trans Sumatra toll road by 2027. HK plans to take up any new Trans Sumatra project only after it has clarity on equity support from the government.

FCF Deficit; Rising Leverage: We expect free cash flow (FCF) to remain negative due to ongoing Trans Sumatra projects that will consume HK's accumulated cash balance. This, along with shrinking EBITDA, will result in EBITDA net leverage rising to around 4x (2025: 0.2x) in the next two years, assuming no new Trans Sumatra projects are added after 2027. HK has deleveraged significantly since 2023 through asset divestments. Its divestible assets have increased as more sections of the toll road start operating, but execution risk remains.

SOE Contractor Consolidation Remains Event Risk: The government's plan to merge construction state-owned entities (SOEs) - Waskita Karya into HK - has been delayed beyond the earlier 2025 target. Management says Danantara is focusing on improving the entities' financial profiles, and other details remain in discussion. Fitch continues to treat the consolidation as an event risk, as related policies and structure have not been finalised and WK has a weaker financial profile than HK. Fitch will reassess HK's SCP and linkages to the government if there is greater clarity on the consolidation structure.

Peer Analysis

HK is rated one notch below the sovereign rating. This is comparable with Indonesia oil and gas company PT Pertamina (Persero) (BBB/Negative). Pertamina's rating is equalised with the sovereign rating, based on a 'Very Strong' likelihood that it would receive government support as Indonesia's national oil company. Pertamina also has 'Very Strong' assessments for preservation of government policy role and contagion risk, compared with 'Strong' for HK. Pertamina plays a key role in the nation's energy security, and a default would derail the substantial investments in the oil and gas sector and curb fuel availability. We believe investors consider Pertamina to be a reference issuer, leading to financial consequences for the state and other GREs if it defaults.

Similar to HK, we believe the state has 'Very Strong' decision-making and oversight as well as precedents of support for Pertamina. The government appoints the board and senior management, directs and approves its investments, and keeps prices for certain fuels sold by Pertamina at below market rates. The government also supports the company through subsidy reimbursements for fuel sold under the public-service obligation mandate and compensation for cost under-recovery for other fuels.

HK's national SCP is lower than the rating of PT Kawasan Industri Jababeka Tbk (KIJA; B-/BB+(idn)/Stable), an Indonesia-based industrial township developer. We believe KIJA benefits from improving operating performance, while its liquidity is supported by positive FCF, healthy interest coverage of above 2.5x and adequate access to bank funding. KIJA's debt maturity profile is manageable in the near term, with a large maturity in December 2027 when its US dollar note falls due. By contrast, HK's financial flexibility is constrained by low EBITDA interest coverage.

Fitch’s Key Rating-Case Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer:

- New contract wins of IDR11 trillion-18 trillion a year in 2026-2027;

- Average EBITDA margin of around 16% in 2026-2027;

- Average annual capex of around IDR10 trillion in 2026, decreasing to around IDR500 billion thereafter;

- No divestments.

Corporate Rating Tool Inputs and Scores

Fitch scored HK as follows, using our Corporate Rating Tool (CRT) to produce SCP:

- Business and financial profile factors (assessment, relative importance): management (bb+, moderate), sector characteristics (b+, moderate), market and competitive positioning (b+, moderate), diversification and asset quality (b, moderate), company operational characteristics (bb, lower), profitability (bb-, moderate), financial structure (ccc+, higher) and financial flexibility (b, higher).

- The quantitative financial subfactors are based on custom CRT financial period parameters: 20% weight for the historical year 2025 (estimated), 40% for the forecast year 2026 and 40% for the forecast year 2027.

- 'B+' to 'CC' considerations apply in our analysis and result in no adjustment.

- The governance assessment of 'good' results in no adjustment.

- The operating environment assessment of 'bbb-' results in no adjustment.

- The SCP is 'b-'.

To derive the Long-Term IDR:

- Application of Fitch's GRE criteria results in a top-down -1 approach.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- A downgrade of the sovereign rating.

- Weakening likelihood of support from the government.

Factors that Could, Individually or Collectively, Lead to a Stable Outlook:

- A revision of the Outlook on the sovereign's IDR to Stable, provided there is no significant weakening of the likelihood of the government extending support to HK.

For the sovereign rating of Indonesia, the following sensitivities were outlined by Fitch in our Rating Action Commentary of 4 March 2026:

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- Macro: Buildup of macroeconomic vulnerabilities, for example from a further weakening of the policy framework.

- Public Finances: A material increase in the overall public debt burden, resulting, for example, from a substantial rise in fiscal deficits, or materialisation of contingent liabilities.

- External Finances: A sharp decline in FX reserve buffers, resulting, for example, from outflows stemming from deterioration in investor confidence or further weakening in governance.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- Macro: Increased confidence that disciplined policies will continue to support macroeconomic stability, which could lead to a revision of the Outlook to Stable.

- Public Finances: A marked improvement in the government revenue ratio closer to the level of 'BBB' category peers, including from better tax compliance or a broader tax base, which would strengthen public finance flexibility.

- External Finances: A material reduction in external vulnerabilities, for instance, through a sustained increase in FX reserves or lower exposure to commodity price volatility.

Liquidity and Debt Structure

HK's liquidity and refinancing risks are mitigated by long-dated maturities, sound funding access and state guarantees on most of its debt. Its cash and equivalents of about IDR29 trillion at end-2025 should cover the IDR5.5 trillion of debt due within a year, including IDR4.2 trillion of revolving credit facilities that we expect to be rolled over under normal conditions. Limited near-term maturities support financial flexibility, with meaningful maturities only from 2027 as a few local bonds come due.

HK maintains relationships with multiple banks, including through syndicated facilities, and we estimate that over 70% of its loans outstanding at end-2025 were from state-owned financial institutions. The company also has access to the domestic bond market, issuing about IDR8.1 trillion of bonds and sukuk since 2016.

Issuer Profile

HK, which is fully government owned, is one of Indonesia's largest engineering and construction companies, with an order book of around IDR60 trillion at end-2025. Construction-related services is its largest business segment, contributing 75% of its 2025 revenue. It also undertakes toll road operations, the sale of goods and building materials, and the sale and rental of properties.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

HK is rated one notch below the Indonesian sovereign, based on Fitch's GRE assessment. A change in our assessment of Indonesia's credit quality would result in a change in HK's rating.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The results of our Climate.VS screener did not indicate an elevated risk for HK.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)