Garuda Indonesia eyes fundraising after securing $22m top-up

Hot on the heels of Indonesian lawmakers approving a $522 million bailout for struggling national carrier Garuda Indonesia, the airline is also considering raising more funds by selling shares and wants to invite “strategic investors” to join. take a stake. This is the latest installment in the long saga of the restructuring of Garuda Indonesia.

Garuda’s convoluted restructuring continues

The Indonesian airline is halfway through a court-supervised restructuring process to avoid bankruptcy. But it’s fair to say that this restructuring is more complicated than most. By early January, nearly 500 creditors had filed claims against the airline with its administrators, totaling $13.8 billion.

That’s a lot of money on anyone’s book and certainly more than Garuda Indonesia can afford to pay. The key to the restructuring process is to reduce the amount of debt to be paid and raise new capital to keep the airline in the air. But with so many interested parties, including the Indonesian government (which owns a 50.3% stake), it is not easy to chart a course through the restructuring process.

The administrators of Garuda Indonesia want to reduce its debt by around 60%. Photo: Boeing

Negotiations with creditors are progressing slowly

Last week, the Indonesian Parliament approved the injection of $522 million subject to Garuda Indonesia reaching a settlement with its creditors. A judge overseeing the restructuring process has set May 20 as the deadline for it to happen. So far, administrators have “verified” claims from 312 creditors worth about $3.15 billion, while more than $10.4 billion in claims from 172 creditors (mostly lessors) remain unverified.

Technically, an Indonesian company must go through the restructuring process, officially known as the Debt Payment Obligation Suspension (PKPU) procedure, within 270 days to avoid bankruptcy. The countdown to these 270 days began last December.

Garuda administrators want to lower the debt level to around $3.8 billion, which will mean many creditors cutting their hair. If, by some miracle, the trustees manage to strike a deal by May 20, creditors will vote to approve the deal, the court will have to approve it, and the Indonesian government (assuming it keeps its word) will release the 522 millions of dollars. . Garuda Indonesia said it would use the money to pay employees and tax obligations.

Garuda Indonesia is in the process of significantly reducing and simplifying its fleet. Photo: Getty Images

Raising capital from strategic investors on the table

Bloomberg also reports that the airline’s executives are considering a rights issue to raise an unspecified amount of money and are asking high-net-worth individuals to invest, which could bring the Indonesian government’s stake in the airline to less than 50%. Garuda’s chief financial officer, Prasetio (who goes by the same name), told a creditors’ meeting on Monday that the airline wanted to launch the rights issue after securing the financial top-up from the Indonesian government.

He says the airline wants to target local investors rather than international investors. Earlier, Indonesian tycoon and second shareholder of Garuda, Chairul Tanjung, had indicated his desire to increase his stake. But given Garuda’s eventful financial history (this is the airline’s third restructuring in two decades), you need to have some risk appetite before handing over a check to invest in Garuda Indonesia. .

Meanwhile, Garuda Indonesia continues to fly, albeit on a reduced basis. Part of the restructuring process will see the airline shrink. The fleet will be reduced and simplified. Destinations are being permanently dropped and the airline’s footprint will be much smaller than it once was. The general consensus is that a smaller, more regional airline is the way to go. But first, Garuda Indonesia has to go through the restructuring process.

Source: Bloomberg