Indonesian flag carrier Garuda Indonesia may fail to secure enough funds during the airline'€™s upcoming rights issue given the unfavorable conditions in the local stock market, analysts have said.

They said it was likely that Garuda would repeat what it experienced during the airline'€™s initial public offering (IPO) in 2011, when the company failed to secure its targeted funds, as shares were not fully absorbed by the market.

Investa Sarana Mandiri analyst Kiwoyo Adi Joe said Friday that considering its declining earnings and negative market sentiment toward the airline business, Garuda'€™s rights issue could be met with a lack of response from investors.

'€œAs State-Owned Enterprises Minister Dahlan Iskan has given its underwriters leniency not to absorb all the unsold stock, Garuda might fall short of reaping the targeted funds,'€ Kisworyo said. '€œIt should issue bonds if it needs the cash.'€

Dahlan said Thursday that state-run securities company Bahana should not be forced to buy unpurchased shares, if part of the shares were not absorbed by the market.

Garuda hopes to raise up to Rp 1.6 trillion (US$135.45 million) from the rights issue in April, 80 percent of which will be used to purchase new airplanes while the remainder will be used as working capital.

Garuda will sell 3.2 billion new shares, priced at Rp 460 to Rp 500 during the planned rights issue.

Bahana Securities, Mandiri Sekuritas and Danareksa have been appointed as underwriters for the rights issue.

The three also acted as underwriters for Garuda'€™s IPO back in 2011, in which they spent Rp 1.41 trillion to purchase unsold shares. During its IPO, shares of Garuda Indonesia were not fully purchased by investors. Nearly half of its shares offered were bought by underwriters.

None of the underwriters could be reached for comment.

Asjaya Indosurya Securities analyst William Suryawijaya said that if Garuda did not improve its performance, market response toward the rights issue should be better than during the IPO.

Garuda suffered a significant profit decline last year mainly due to a weaker rupiah and massive spending to develop its subsidiary, PT Citilink Indonesia.

Garuda saw net profits fall to $11.2 million last year, down 89.9 percent from $110.8 million in 2012. The airline'€™s operating income decreased 66.4 percent to $56.4 million compared to 2012, when it recorded operating income of $168.1 million.

It was previously reported that Garuda president director Emirsyah Satar said that half of the airline'€™s revenues were in US dollars and that the rest were in rupiah, while around 60 percent of its expenses were in US dollars

Last year, the airline incurred operating expenses of $3.70 billion, up from $3.29 billion in 2012, as a result of increasing fuel costs from $1.25 billion to $1.42 billion last year.

While the carrier had been encumbered enough by rising costs, Citilink saw losses of $48.4 million last year, with total revenues of $273.4 million.

As its parent company, Garuda is now preparing to list Citilink on the stock exchange in 2015, a process the airline expects to be complete in the first quarter of 2014. Garuda'€™s shares, which are listed under the code GIAA, slumped 4 percent to close at Rp 460 on Friday, compared to Rp 480 a day earlier.

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