Mandiri may have 10.6% of Garuda’s shares by year-end

The country’s largest lender PT Bank Mandiri may have a 10.6- percent stake in the national flag carrier PT Garuda Indonesia before the end of the year under a debt settlement agreement to be signed this week.

“We have settled all the internal documentation papers from our side. We are now just waiting for Garuda [’s response]. If [its] all okay, we can sign the paper within the next one or two days,” Mandiri managing director for corporate banking Abdul Rachman said on Tuesday.

The signing will mark the end months of argument between the two state-owned companies over Garuda’s US$100-million debt to Mandiri. Garuda and Mandiri signed a loan agreement in 2001, under which Garuda will now pay the debts with shares to Mandiri using a mandatory exchangeable bond scheme. Therefore, Mandiri is expected to get the loan repaid when Garuda holds a public offering later.

Earlier, Mandiri demanded Garuda pay its overdue debts including the due amounts of interest, which were estimated to reach Rp 3.36 trillion (US$352.8 million), or more than triple the principal debt. The loan has been a bad debt since 2003.

Garuda contested this, insisting it only owed the bank $100 million. The airline said that the government as the majority shareholder of the company would guarantee the loan and take responsibility should any problem arise. The row subsided when the government said it would pay the remaining Rp 2 trillion of interest due to Mandiri.  But it is not clear yet how the government will pay this money owed to the bank.

Calls and text messages sent to Garuda spokesperson Pudjobroto to clarify this have not been returned.

Meanwhile, Abdul said the bank hoped Garuda would hold its public offering soon.

The bank was not supposed to own assets that have been declared as bad debts. Mandiri plans to sell its Garuda shares to the market and get cash from the proceeds.

Garuda is expected to offer its shares to the public in the middle of next year.

The airline has already secured approval from the lawmakers to sell up to 49 percent of its shares to the market.