Garuda Indonesia to demand suspension of debt payments to avoid bankruptcy



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JAKARTA: The national airline Garuda Indonesia will call for a suspension of debt payments to creditors and donors under a “standstill deal” to avoid bankruptcy, a senior government official said on Thursday (3 June).

The coronavirus pandemic has strained the finances of the state-controlled airline with negative cash flow of around US $ 100 million per month and soaring debt, said Kartika Wirjoatmodjo, vice – Indonesian Minister of Public Enterprises (SOE), during a parliamentary hearing.

The carrier needed a “fundamental restructuring” to reduce its debt to around US $ 1 billion to US $ 1.5 billion, from the current US $ 4.5 billion, to continue operating, he said. he declares.

“We are appointing legal and financial consultants to start this process and we must immediately proceed with a moratorium (on debt repayments) or a short-term shutdown,” Kartika said.

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

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

“We hope that 270 days after the moratorium we can complete the restructuring,” Kartika said, warning that the lack of a quorum “could lead to bankruptcy and that is what we are trying to avoid”.

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

There was also a government bailout of 8.5 trillion rupees ($ 594.4 million) via a convertible bond sale in 2020, but Kartika said the finance ministry halted payments after just 1,000. billion rupees because Garuda did not respect certain clauses.

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

Its international routes were also not profitable, Kartika said.

SOE Minister Erick Thohir told reporters on Wednesday that Garuda will focus on serving domestic roads during the restructuring process.

Garuda chief executive Irfan Setiaputra declined to comment.

In a stock exchange filing last week, Garuda said he was negotiating with all lenders and lessors to mitigate insolvency risks and grow his freight business to improve his income.

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