Coronavirus adds to woes of Indonesian flag carrier facing debt bill of S$690 million

Garuda Indonesia is discussing all available options on its outstanding debts and aiming for a solution before any of those liabilities mature. ST PHOTO: ARIFFIN JAMAR

JAKARTA (BLOOMBERG) - The coronavirus outbreak could not have come at a worse time for Garuda Indonesia, pummelling demand at the flag carrier just as it faces a debt bill for half a billion US dollars.

Debt market concern about sagging travel demand and the impact of financial market turmoil has caused Garuda's US$500 million (S$690 million) notes due on June 3 to tumble to a record low of 55.3 US cents on the dollar, according to Bloomberg-compiled prices.

The securities have dropped 5.9 US cents this week after sinking 36 US cents last week.

Garuda is discussing all available options on its outstanding debts and aiming for a solution before any of those liabilities mature, president-director Irfan Setiaputra said in a text message in response to queries from Bloomberg.

The virus epidemic is wreaking havoc on airlines across the globe, and the Indonesian state-owned carrier is no exception.

Garuda slashed its international capacity by 30 per cent as of Feb 17 compared with what it offered four weeks earlier, resulting in a 12 per cent decline in its total seats being offered, according to data from OAG Aviation Worldwide.

"Under a normal situation, the company's debt issue should not have been a major problem," said Mr Fahressi Fahamlesta, a Jakarta-based analyst at PT Ciptadana Sekuritas Asia. "But this outbreak of coronavirus has become a perfect storm for the company, resulting in slumping travel demand and a crashing market which will make fund-raising difficult."

Garuda's shares have dropped 44 per cent this year after tumbling 38 per cent in February alone, its biggest monthly retreat ever.

The airline has a history of defaults.

It missed payments during the Asian financial crisis in the late-1990s, when the rupiah plunged.

It also restructured its international and local currency debt around 2010.

Its total debt was US$1.5 billion, compared with cash and equivalents of US$345.8 million as of Sept 30, according to Bloomberg-compiled data.

Garuda will likely end up restructuring its debt for the third time and if that happens, recovery on its bonds will "in all probability be very low and involve meaningful haircuts", Deutsche Bank said in a credit note sent on March 3.

Even without the maturing debt, the carrier's new management might have to thoroughly restructure its operations to deal with the downturn from this coronavirus outbreak, according to aviation analyst Gerry Soejatman.

"Garuda would need drastic measures to get through this one, that includes fleet reduction and grounding of some aircraft," Mr Soejatman said. "Even if they don't have this pressure from the debt repayment, these drastic measures are still needed."

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