The Indonesian government plans to merge PT Garuda Indonesia Tbk (IDX: GIAA) with other tourism state-owned enterprises to set up a holding company for tourism and aviation sector - Photo by the Company

JAKARTA (TheInsiderStories) – The national airlines, PT Garuda Indonesia Tbk (IDX: GIAA) has submitted a request to extend the payment of its Global SUKUK worth of US$500 million which will mature on June 3, said the company on Tuesday (05/19).  It said, the extension a minimum three years to the bondholders.

“Through the request, Garuda Indonesia can strengthen the company’ liquidity ratio on a more favorable scale so that we can optimize efforts to improve our performance more dynamically,” said the CEO, Irfan Setiaputra by adding the COVID-19 pandemic have a significant impact on the state-owned firm’ financial conditions.

He said, the proposal has been submitted through the Singapore Exchange (SGX) with information disclosure on the Indonesia Stock Exchange (IDX) and to the Financial Services Authority. The bondholders general meeting will be held at the end of the grace period on June 10.

As part of the Economic Recovery Program, Indonesian government will injects new capital Rp8.5 trillion to Garuda to help the financial condition of the flight carrier. Currently, the state-owned airline has a total loan of $1.83 billion and net loan $1.53 billion, while the equity position worth of $720.62 million.

Means, the debt to equity position reached 2.55 times and net debt to equity ratio at 214 percent. Garuda Indonesia is recorded have significant short-term liabilities as of the end of 2019, totaling $3.25 billion. These short-term obligations dominate the company’ total liabilities which reached $3.73 billion, consist of bank loans $984.85 million and bonds.

Setiaputra stated, now the company explores various options to overcome the company debts amid the COVID-19 outbreak. In response to the local bourse query, the publicly listed firm says it has begun negotiations with lessors to delay or extend the payment periods.

He continued, beside renegotiate with its creditors, Garuda also seeking financing support from financial institutions. In addition, the airline planned to cut its expenses by 20 percent, and is seeking some form of government support.

He also “optimized” the number of flights, increases the capacity of cargo business and repatriation flights, closing unprofitable routes, delaying the delivery of four Airbus A330 900 Neos for this year.

Early of 2020, Garuda has aborted its global bond issuances worth of $900 million caused not get approval from the shareholders. Initially, the funds will use to pay the maturity debt in June.

Setiaputra elaborated, the maturity debt will be paid by three schemes. First, the company will issue the bond without special guarantee $750 million with tenure four years. The company also considered to conduct private placement with a value of $750 million.

The last option which takes the company into account is the peer to peer lending in dollar currency of $500 million. The transaction has tenor until 2024 and aims to pay debt matured in one year.

“Considering the transaction is above 50 percent of the company’ capital, so the company should hold a shareholders meeting to get approval,” said the management.

Garuda was currently facing issues related to the smuggling of Harley Davidson and Brompton involved the CEO and other five directors. Therefore, the minister of state own enterprises Erick Thohir, fired Ari Askhara as the CEO and replaced by Fuad Rizal as the acting CEO.

The minister will also examine closely all parties involved in this case and believes the finance minister and the customs director-general will process them fairly and thoroughly. The publicly listed firm also had to be punished by the authority and the ministry of finance related to financial statements per December 2018. From the evaluation, they imposed several sanctions on the airline and its directors.

The agency stated, its directors would each be fined Rp100 million ($6,666.67), in addition to another collective sanction that will be imposed on directors and commissioners who had signed off on the results. Amid the development in the global economy, Setiaputra rated, in the next six months the aviation industry will deteriorate, as there is a lack of clarity when the pandemic will end.

Usually, the peak season in May and June for travelers as it coincides with the end of Ramadan and  school holidays. In addition, Garuda may also be unable to operate Hajj flights this year, which falls in the July – August period. The company expects a 33 percent decline in its total revenues in the first quarter of 2020 due to falling passenger numbers and ticket prices.

Recently, the passenger segment contributes more than 80 percent of its total revenue, and the fall in passenger numbers comes after Indonesia implemented measures to limit the spread of the COVID-19.

In 2019, Garuda posted an operating profit of $147 million, a turnaround from 2018’ $199 million operating loss. Revenues worth of $4.56 billion, and net profit was $7 million.

US$1: Rp15,000

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