Andi Haswidi and Ika Krismantari, The Jakarta Post, Jakarta | Wed, 08/12/2009 10:36 AM
State airline company Garuda Indonesia expects to raise as much as US$400 million from its much-awaited Initial Public Offering (IPO) in June, next year.
Market response to the IPO, however, will largely depend on the company’s ability to settle its US$670 million in debts, analysts said.
The debt includes $450 million it owes to the European Credit Agency (ECA) and $100 million it owes to Bank Mandiri.
Following intensive negotiations with its lenders, Garuda announced recently it would complete the restructuring of a large portion of its debt by next month.
What remains to be completed is the conversion of Bank Mandiri’s mandatory convertible bond into equity, on which Mandiri has already showed its reluctance.
Mandiri vice president Wayan Agus Mertayasa said late last month that the bank considered the shares as a troubled asset and decided not to make it part of the company, preferring Garuda pay off the $100 million debt.
Mirza Adityaswara, a managing director at Mandiri Sekuritas, said Tuesday the success of Garuda’s
entry to the stock market would depend on how the company settles its debts.
“It will be best for the company to settle all debt problems before the public offering,” Mirza said.
Debts aside, Mirza forecasts the market will response positively to Garuda’s IPO in June.
“Its financial performance is getting better, its management has become more transparent and the quality of its services has been improving.”
He added that the transformation into a public company would not only boost Garuda’s capital but improve its corporate governance.
Ahmad Nurcahyadi of BNI Securities said the overall outlook of the aviation industry was stable as there would always be demand for travel, thus he expected a positive outlook on Garuda’s IPO.
He agreed it was necessary for Garuda to settle its debts if it wants stronger footing for the IPO.
“I think there is no problem as long as they can secure further growth,” Ahmad said.
President director of Garuda, Emirsyah Satar, acknowledges that timing is of the essence for the IPO.
The expected launch, slated for June 2010, is based on a positive outlook of the market condition, vis-à-vis investor sentiment, he said.
“The target of proceeds from the IPO is between $300 million and $400 million,” Emir told The Jakarta Post on Tuesday. The proceeds, he said, would be used to double the carrier’s fleet to 103 planes by 2013, improve safety standards and further pare down its debts.
Emir added that the amount of shares needed to be sold to meet the IPO target would depend on Garuda’s total valuation in June and the government’s final decision on the plan. Based on the latest internal valuation on Garuda’s assets, the company is estimated to be worth $1.4 billion.
