Garuda Indonesia eyes rights issue after deal with creditors

PT Garuda Indonesia plans to raise money via a two-stage rights issue, as the indebted airline looks to salvage itself. 

After the carrier and its creditors come to agreement on its debt, the Indonesian government will inject 7.5 trillion rupiah ($520 million) via a first rights issue, Deputy Minister of State-Owned Enterprises Kartika Wirjoatmodjo told a parliamentary hearing Tuesday.

The announcement comes just days before a scheduled key meeting in Jakarta, to decide how much of a haircut gets imposed on holders of its debt. Creditors are then expected to vote on the carrier’s $9.8 billion restructuring plan later this month. 

The debt restructuring of the ‘technically bankrupt’ carrier is becoming a test of how far Indonesia’s government will go to rescue a state-owned company. Like many airlines, its business suffered due to the pandemic. 

Garuda said earlier in the year that it wanted investors to take a haircut of 81 cents on the dollar for their debt. 

Failure to reach an agreement with creditors within the 270-day limit stipulated by law would put Garuda in liquidation. That could hurt the country’s tourism industry. 

Garuda is running on roughly 20% of its pre-pandemic fleet, curbing its ability to generate operating income. 

Wirjoatmodjo said the second rights offering will be conducted early in the fourth quarter to allow strategic investors to buy a stake in the carrier. The government plans to keep a 51% share, he said.