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ublicly listed flag carrier Garuda Indonesia and electricity firm PLN are the latest state firms that have moved to hedge their foreign exchange (forex) loans at the government'€™s request in an attempt to mitigate currency risks amid rupiah volatility.

Garuda signed on Tuesday a partnership agreement with four private banks, namely Bank Internasional Indonesia, Bank Mega, ANZ Indonesia and Standard Chartered Bank, for a Rp 1 trillion (US$77.01 million) hedging facility.

The PLN agreed on Friday with state lenders Bank Mandiri, Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI) a forex hedging facility worth $950 million.

State-Owned Enterprises (SOEs) Minister Rini Soemarno said she was also urging other state firms such as oil and gas firm Pertamina, state-run steel giant PT Krakatau Steel and diversified miner PT Aneka Tambang (Antam) to hedge their forex debts.

'€œMost state enterprises were previously in doubt about the hedging option because possible losses due to the measures could be considered state losses,'€ Rini said recently.

In the past, state firms incurring financial losses due to hedging practices could be considered to have caused state losses, thereby opening up the possibility of being investigated by the Corruption Eradication Commission (KPK) or the Supreme Audit Agency (BPK).

But in June last year, the SOEs Ministry, Bank Indonesia and BPK signed a memorandum of understanding (MoU) stipulating that hedging on forex loans would no longer be considered inefficient, let alone qualify as a state loss. If state enterprises suffer losses due to hedging, it will be considered a normal business risk, according to the MoU.

Companies are required to pay a certain amount of money as a premium when they hedge their forex loans. Losses from hedging might happen if, for example, the rupiah stays strong against the hedged-forex when the facility meets its due date.

'€œWe also hope that in the future, the hedging facility will not only be for US dollars, but also for other foreign currencies, such as Japanese yen and Chinese yuan,'€ Rini said.

Hedging basically sets certain values for the rupiah against foreign currencies to reduce uncertainty in forex volatility and unwelcome surges in future payments.

The rupiah depreciation against foreign currencies partly contributed to Garuda'€™s net loss of $373 million in 2014 '€” worsening from a $11.2 million net profit in 2013.

'€œBy setting a certain value for the rupiah against the US dollar, the total efficiency during the 3 years and 3 months tenor is estimated to reach US$16.4 million,'€ Garuda Indonesia president director Arif Wibowo said.

Garuda'€™s Rp 1 trillion facility spans three years in the form of a cross-currency swap (CCS), which aimed not only at preventing losses from currency fluctuation but also from interest rate volatility as it sets repayment at the original rate.

The four lenders will pay Garuda'€™s obligation to bond holders in rupiah on April 5 this year, and the state carrier will pay the debt to the banks in US dollars on July 5, 2018.

Garuda has previously also signed a hedging facility agreement worth another Rp 1 trillion with state lender Bank Negara Indonesia, Bank CIMB Niaga and Standard Chartered.

Meanwhile, Antam president director Teddy Badrujaman said his firm would consider hedging part of its foreign currency-denominated liabilities.

'€œWe'€™ll see [about hedging]. The most important thing is that state enterprises are now allowed [to hedge debts] without having to worry about possible losses due to the measure,'€ he said after a closed-door meeting at the SOEs Ministry office on Tuesday.