Garuda Indonesia may have to sell off aircraft to balance the books (Wikicommons)

Islamic Finance

Flailing Garuda Indonesia working on sukuk restructuring plan

Garuda Indonesia is struggling to settle a $500 million sukuk payment.


JAKARTA – Following the coupon payment default of a $500 million sukuk that matured lin June 2020, Indonesia’s national flag carrier is formulating a restructuring plan, hoping to provide clarity for its certificate holders.

Irfan Setiaputra, CEO of Garuda Indonesia, told Salaam Gateway that the company is currently focusing on restructuring schemes to its lessors and creditors first, before solving the pending matters with the sukuk certificate holders.

“We have appointed Guggenheim Securities LLC as our advisor and we have a detailed plan. We can’t share it at the moment, but I can say that we have made progress regarding our restructuring plan. We have proposed the scheme to our lessors and creditors. This could be a significant initial step in efforts to rebound (in terms of) our performance. If this step is going well, then later we can talk more about sukuk restructuring,” he said.

On 10 June 2020, Garuda Indonesia garnered the support of 90.88% of sukuk holders, who hold $454,391,000 of the principal of the bond, to extend the tenure of the repayment of its $500 million sukuk by three years from the original maturity date of June 3, 2020.

“We gave our restructuring proposal that includes our long-term business plan and offerings regarding our debt repayment to our lessors, creditors and main suppliers. It is the initial step towards being a more adaptive, efficient and profitable business entity,” said Setiaputra.

The proposal was sent through a digital channel that can be accessed in real-time by lessors, creditors and other parties in line with a non-disclosure agreement agreed by the stakeholders. They can give feedback while the process should be as transparent and fair as possible.

Apart from the solution offered in the proposal, according to Setiaputra, some of Garuda’s creditors prefer the suspension of a debt payment obligations route. They have submitted this to a court to present a composition plan that includes an offer to pay all or part of their debts to unsecured creditors.

Other efforts has been carred out in order to save Garuda, including reviewing its management costs and operational efficiency.

Setting the precedent

Toto Pranoto, an economist at the University of Indonesia, told Salaam Gateway that there is no mechanism to protect the interests of investors at the moment, referring to court supervised debt moratoriums and bankruptcy proceedings for sukuk being rare cases in Indonesia. There is speculation as to whether Garuda’s case will be dealt with in court or through an out-of-court settlement.

The default has significantly damaged the airline’s reputation, with the risk of investing in Garuda becoming higher in the eyes of investors and creditors. As a result, future lenders will charge higher interest on loans to the national carrier.

“Garuda must firstly complete the onrgoing restructuring programme. Reducing the aircraft and other operational aspects of efficiency must become their priority, in addition to diversifying revenue, especially increasing the cargo business. The last option is for government assistance through working capital loans,” said Pranoto.


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