The pandemic has hit the financial conditions of state-owned flag carrier PT Garuda Indonesia Tbk (IDX: GIAA) in the first semester of 2020 - Photo by the Company

JAKARTA (TheInsiderStories) – Publicly listed flight carrier PT Garuda Indonesia Tbk (IDX: GIAA) considered to issue U.S dollar denominated bonds US$750 million in second half of 2018 to strengthen the company’s funding structure, local media reported.

Lastly, the company issued a global SUKUK worth $500 million in May 2016. CEO Pahala Mansury announced on Oct. 25 also considering an issuance of an Indonesian Rupiah-denominated global bond, known as a ‘Komodo Bond’.

Helmi Imam Satriyono, Director of Finance and Risk Management of GIAA quoted by KONTAN added, the company will use the funds to refinance rupiah bonds to mature this year.

Based on Garuda’s third quarter 2017 financial report, there are rupiah bonds maturing in July 2018 worth of Rp 4 trillion ($298.50 million). The bond was issued in July 2013.

In addition to setting up global bonds, GIAA continues to seek strategic investors for its subsidiary, PT GMF AeroAsia Tbk (IDX: GMFI). As a continuation of the initial public offering, GMFI will be a private placement by releasing 20 per cent of company’s shares combined with the parent stock divestment by 10 to 15 per cent. BNP Paribas acted as the sole arranger for the shares sale.

During January to September (9M), the state-owned’s flag carrier still suffered $76.1 million compared to $137.9 million in the same period in 2016. Garuda’s operating revenue rose 8.6 per cent to $3.1 billion in the 9M of 2017, compared to $2.9 billion in 9M of 2016.

The increase in operating revenues is bolstered by the growth of the company’s operational performance in the international market, which is above the average performance of the Asia Pacific airlines. The company managed to transport 3.7 million international passengers to 9M 2017, up 12.8 per cent compared to 9M 2016 of 3.3 million passengers.

Throughout the 9M 2017 period, Garuda Indonesia Group (Garuda and its unit PT Citilink Indonesia) managed to carry 26.8 million passengers along, or grow 3 per cent compared to 9M 2016 period of 26 million passengers.

The Company is currently focusing on efficiency, and aims to reduce costs by up to $30 million. Various severe actions have reduced costs, including closing unprofitable Jakarta-London and Jakarta- Melbourne routes, thus saving 30 per cent in expenses.

Company is also renegotiating with nine lessors and vendors, including Rolls Royce for engines, a ground handling and hotel operator in Jeddah, et cetera. They have also commenced negotiations to delay delivery on three or possibly four aircraft already ordered as the Company wants to increase current utilization that more or less reaches nine hours and 21 minutes.

Other efforts include extending rent periods to cut rental costs 22 or 25 per cent. Also, renegotiation of $500 million global SUKUK listed in Singapore Stock Exchange, to build efficiency for the company.

Garuda also will implement full hedging of fuel prices for the next one year: the hedging ratio was previously only 10 to 15 per cent, but now sits at 35 to 50 per cent. Fuel is a major contributing factor to expenses, and has risen 14 per cent on an annual basis.

The Institute of International Finance (IIF) reported that as of the third quarter of 2017, the amount of global debt rose by $16 trillion from the end of 2016 to $233 trillion. Of these, IIF noted, the growth of non-financial private debt from Canada, France, Hong Kong, South Korea, Switzerland and Turkey, rose the most.

This, according to the IFF could be a warning for the central bank that intends to raise its benchmark interest rate. Because if it is done, it will burden the ability of the debtor to pay the loan.

Still based on the IFF record, the position of the second largest debt owner is booked by government agencies around the world that recorded total debt worth $63 trillion. Meanwhile, global financial institutions recorded a total of $58 trillion. Then the household segment recorded a total debt of $44 trillion.

On the other hand, International Monetary Fund has warned in October 2017 that Chinese banking assets have jumped by 310% against GDP, compared to 240% of GDP by the end of 2012.

Because of this debt also, in September 2017, S&P Global Ratings downgraded China’s long-term credit rating. Long before S&P, Moody’s in May 2017 had already taken the stand by cutting China’s long-term credit rating.

Written by Linda Silaen, Email: