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Garuda opens dialogue with sukuk holders as it struggles to pay dues
Garuda Indonesia issued US$496.8 million in global sukuk on June 3, 2015, with a five-year tenure and an annual return of 5.95 percent.
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A passenger gets ready to board a Garuda Indonesia airplane at Ngurah Rai International Airport in Denpasar, Bali, in July 2016. (Shutterstock/Sony Herdiana)
National flag carrier Garuda Indonesia is reaching out to the holders of its sukuk to hold a discussion on repayments due in June as the airline struggles to maintain cashflow amid the turbulence caused by the COVID-19 outbreak.
Garuda president director Irfan Setiaputra said every time a sukuk due date was approaching, a company had three options to consider: repayment with a discount, full repayment or a payment extension.
“We offer three options and we have talked with our sukuk holders about how to deal with the situation. Hopefully, there will be a solution to this matter,” he told the press during a virtual briefing on Monday.
Garuda Indonesia issued US$496.8 million in global sukuk on June 3, 2015, with a five-year tenure and an annual return of 5.95 percent, according to the company’s financial report released in September last year.
However, the airline has struggled to maintain its cashflow with the number of flights nosediving due to the implementation of large scale social restrictions across the country and the imposition of travel bans by various countries to contain the spread of the SARS-CoV-2 virus.
Garuda Indonesia recently sent a letter to its sukuk holders on the repayment. In the letter dated April 29, which was signed by Garuda finance director Fuad Rizal, the company admitted that the pandemic had created an extremely challenging business environment for the airline.
“In response to this, the company has been taking measures to ensure the well-being of its staff and customers while managing liquidity proactively amid the uncertainty the airline industry currently faces. The company continues to assess all its options to remain a going concern, in particular in relation to its sukuk due in June 2020,” stated Garuda.
Garuda Indonesia has also appointed PJT Partners to facilitate the discussion between the airline and bond holders to find a solution to the problem.
Apart from the negotiations, Irfan revealed during a hearing with lawmakers on April 27 that Garuda was considering taking out bank loans to help the company repay the sukuk.
Read also: Indonesian air carriers report sharp decline in cargo traffic
The COVID-19 crisis has dealt a severe blow to Garuda and airlines around the world with the aviation industry recording a sharp decline in passenger numbers and revenue since February.
According to presentation materials made available to lawmakers, Garuda estimates it suffered a 31.9 percent decline in passenger and cargo revenue in the first quarter compared to the same period last year. The COVID-19 crisis has also forced Garuda to ground 100 of its 142 aircraft.
Finance Minister Sri Mulyani Indrawati said on Monday that only 70 flights were scheduled daily across the entire the country, down from 79,000 daily flights before the virus outbreak.
