Garuda Indonesia to seek suspension of debt payments to avert bankruptcy

Workers clean the body of a Garuda Indonesia Airbus A320 aircraft inside Hangar 4 of PT Garuda Maintenance Facility (GMF) Aero Asia at Soekarno-Hatta airport in Jakarta.

National flag carrier Garuda Indonesia will seek a suspension of debt payments to creditors and lessors under a ‘standstill agreement’ in order to avoid bankruptcy, a senior government official said on Thursday.

The coronavirus pandemic has put the state-controlled airline’s finances under serious strain with a negative cashflow of about $100 million a month and ballooning debt, Kartika Wirjoatmodjo, Indonesia’s deputy minister of state-owned enterprises (SOEs), told a parliamentary hearing.

The carrier needed a “fundamental restructuring” to reduce its debt to around $1 billion to $1.5 billion, from $4.5 billion currently, to continue as a going concern, he said.

“We are appointing legal and financial consultants to begin this process and we must immediately conduct a moratorium (of debt repayments) or a standstill in the near term,” Kartika said.

“Because without a moratorium, it will run out of cash in a very short time,” he added.

Kartika said the process will be complicated by having parties within and outside Indonesia, including holders of its $500 million Islamic bonds (sukuk) in the Middle East, with risks of disagreements leading to legal problems.

“We hope that 270 days after the moratorium, we can conclude the restructuring”, Kartika said, warning failure to reach a quorum “could lead to bankruptcy and this is what we’re trying to avoid.”

Garuda previously extended the maturity of its sukuk, due last June, by three years after a drop of passenger volume during the pandemic.

There was also an 8.5 trillion rupiah ($594.41 million) government bailout via a convertible bond sale in 2020, but Kartika said the finance ministry halted payments after just 1 trillion rupiah because Garuda did not meet some covenants.

The deputy minister said Garuda’s finances were already strained before the pandemic, with higher-than-normal leasing costs for a fleet that includes planes made by four different manufacturers.

Its international routes were also unprofitable, Kartika said.

On Wednesday, SOEs minister Erick Thohir told reporters Garuda will focus on serving domestic routes during the restructuring process.

Garuda’s chief executive Irfan Setiaputra declined to comment.

In a stock exchange filing last week, Garuda said it was negotiating with all lenders and lessors to mitigate insolvency risks and developing its cargo business to improve revenue.

Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.