Indonesia drafts $1b rescue plan to save its flag carrier

Bloomberg

Indonesia is finalising a $1 billion financial bailout plan for its flag carrier to help it stave off a debt default after the coronavirus crisis forced the airline to ground most of its planes.
The rescue plan includes a proposal to restructure PT Garuda Indonesia’s $500 million sukuk due next month and arrange new bridge loans of as much as $500 million to meet working capital requirements for three to six months, Deputy State-Owned Enterprises Minister Kartika Wirjoatmodjo said.
Garuda will table the sukuk proposal to investors on May 18 that will include an option to extend the maturity of the securities by three years or a staggered repayment, Wirjoatmodjo said. Last month, the carrier asked bondholders to begin talks with its financial adviser, citing an “extremely challenging environment for airlines” following the virus outbreak.
The government help in tiding over the financial crunch should sooth investor concerns about Garuda’s ability to survive the pandemic that’s forced airlines worldwide to seek state bailouts and emergency funding. Garuda, in which Indonesia’s government owns almost 61%, has already cut employee salaries and renegotiated
aircraft lease agreements to tackle a slump in travel sparked by the pandemic.
“Garuda remains a good company with bright prospects,” said Wirjoatmodjo, a former chief executive of state-owned PT Bank Mandiri. “Its business will remain robust after the outbreak ends.”
Garuda’s $500 million notes due on June 3 have tumbled to 42.492 cents on the dollar from 98.72 cents at the end of January as concerns mounted over the airline’s ability to repay the debt, according to Bloomberg-compiled prices. Garuda’s Chief Executive Officer Irfan Setiaputra said in a March interview the airline won’t default on the debt and was in talks with several banks about refinancing.
With the revenue forecast to take a hit from the pandemic, the national carrier is ramping up its cargo business and utilising its fleet to ferry Indonesians stranded overseas. Garuda and its unit PT Citilink Indonesia secured around $384 million in loans and credit lines from state lender PT Bank Rakyat Indonesia this month to shore up working capital.
Wirjoatmodjo ruled out a direct capital injection by the government as an option to address Garuda’s financial woes.
“The government needs to seriously reconsider the competitiveness of Garuda and manage its cost structure post Covid-19 before considering any capital injection,” said Bharat Joshi, an investment director at PT Aberdeen Standard Investments Indonesia.