Garuda plans to tackle liabilities with $800 million of new debt

PT Garuda Indonesia plans to issue $800 million of new debt as part of a plan to address its liabilities, as the embattled carrier seeks to reverse its fortunes after the pandemic. 

The airline would also raise $330 million by issuing new equity, according to a restructuring proposal made in a Jakarta court on Thursday. The carrier also suggested modifying the payment schedule for existing liabilities. 

The proposed figures are just a fraction of the airline’s liabilities, which totaled $9.7 billion at the end of last year. Creditors are due to vote on the proposals at another court date in Jakarta on June 15. 

Under the plan, holders of the airline’s dollar sukuk would get another sukuk with a 6.5% return, while banks would receive a 0.1% rate of interest, according to the documents presented to the court. They did not offer a breakdown for the value of the new debt by instrument. 

Like much of the aviation sector, Garuda’s business suffered due to the Covid-19 outbreak. It currently is operating only 20% of its pre-pandemic fleet, limiting its ability to raise revenue to repay debts and compete with its rivals home and abroad as the travel recovers.

A key element of the restructuring was made public earlier this week when administrators for Garuda acknowledged claims worth 120.5 trillion rupiah ($8.3 billion).

Garuda’s suggestion to repay its debt to fellow state firms in 22 years elicited objection from some in the court room. A representative of state surveyor PT Sucofindo said it would be hard for the firm to justify such long repayment duration during its audits.

Garuda’s Finance Director Prasetio told the court that there would indeed be an impact on creditors. But the airline had coordinated with state auditors on the proposal, he said.