Garuda Indonesia shareholders back $600mn bond bailout

Garuda Indonesia (GA, Jakarta Soekarno-Hatta) has secured shareholder approval to issue seven-year convertible bonds with a maximum amount of IDR8.5 trillion rupiah (USD600 million), with Indonesia’s finance ministry stepping up to buy them as part of a government rescue for the ailing flag carrier, the company announced in a stock exchange filing. The ministry will acquire the bonds via its “special mission vehicle” Sarana Multi Infrastruktur (Persero), a state-owned investment company that finances infrastructure projects. They will be mandatory convertible bonds, meaning that they will be converted into stocks once the seven years are up. The Indonesian House of Representatives approved the bailout, which was originally proposed by the Ministry of State-Owned Enterprises, in July. If all of the bonds are converted into shares, the government will raise its stake in Garuda Indonesia from 60.54% now to 76.99%, strengthening state control over the company. Under the conditions of the bonds, the coupon rate Garuda will pay has been kept at a minimum.n “The proceeds from the transaction will be used to support the liquidity and solvency of the company, especially for financing operations,” the company said in the filing. The company needs the aid as it is in “a strategic line of business” in which it plays “an important role in Indonesia’s future economic growth, as connectivity support for the flow of goods and passengers in Indonesia and abroad that is crucial for driving economic growth, […] in particular to assist the company’s liquidity problems,” it explained. The filing added that the total liabilities at Garuda Indonesia exceed total assets by 80%, a factor that chief executive Irfan Setiaputra repeated at a November 20 online news briefing that followed the shareholders’ meeting. The proceeds are needed because “the company already has negative net working capital and has liabilities exceeding 80% of assets,” he said, according to Nikkei Asia. He added that he hoped the bond issuance “can encourage faster recovery in the aviation industry, which, in turn, can help the national economic recovery.” The company hopes the funds raised from the bonds will start to flow in before the end of 2020, the CEO said. Garuda Indonesia posted a net loss of USD1.1 billion in the nine-month period to September, unaudited financial results show, a contrast from its USD122.4 million profit a year earlier.