Islamic Finance

Garuda faces key debt deadline with restructuring on the line

Published 16 Jun,2021 via Bloomberg Markets - Troubled flag carrier PT Garuda Indonesia faces a key deadline on Thursday with a payment on its Islamic debt that will reflect its ability to deal with a financing crunch.

The Southeast Asian airline has been trying to avoid bankruptcy as it struggles with the decimation of the global travel industry due to the pandemic. The government said early this month that it’s considering a debt standstill for the carrier to allow it to restructure.

The state-owned company missed the distribution payment on a $500 million sukuk on June 3, and the 14-day grace period ends on Thursday. The Sharia-compliant note due in June 2023 has dropped around 35 cents on the dollar so far this month to a record low of about 41 cents, prices compiled by Bloomberg show.

Garuda is thoroughly reviewing the adequacy of its cash flow for operational needs, Finance Director Prasetio said by a text message late Tuesday in response to a question about whether the Jakarta-based airline can meet the sukuk payment deadline.

New variants of the coronavirus are adding uncertainty to the outlook for airlines around the world, as tentative plans to open up travel destinations are delayed or shelved. Dozens have collapsed or been forced to restructure and adjust their fleets to ride out the crisis.

Among them in Asia, Thai Airways International Pcl said this week it’s seeking new loans to help fund operations after the court approved its plan to rehabilitate at least 170 billion baht ($5.5 billion) of debt.

Garuda has offered early retirement for its staff and is renegotiating contracts with lessors. President Director Irfan Setiaputra said last month that the carrier needs to completely restructure its business, potentially reducing the number of planes to less than half its main fleet.

The airline is in the process of appraising several units to be divested as part of its total restructuring plan, Setiaputra said on Metro TV late Tuesday.

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Tassia Sipahutar and Harry Suhartono