Fitch Ratings Indonesia has downgraded PT Garuda Indonesia Tbk's (Garuda) National Long-Term Rating to 'BBB+(idn)' from 'A-(idn)'. The Outlook is revised to Negative from Stable. At the same time, Garuda's outstanding IDR2trn bonds due in 2018 have also been downgraded to 'BBB+(idn)' from 'A-(idn)'.
The rating downgrade reflects Fitch's view of a sustained weakness in Garuda's financial profile, primarily driven by currency mismatch and a high fixed-cost structure. Fitch expects Garuda's 2014 financial ratios to breach thresholds that trigger negative rating action - FFO-adjusted leverage is likely to have risen above the 7x threshold to 11x, while FFO fixed charge cover likely fell below the 1.2x trigger. Although Fitch expects the metrics to improve in 2015 due to low jet fuel costs, the company's fundamentals remain weak and the operating environment remains challenging.
The Negative Outlook reflects Fitch's expectation that Garuda's financial metrics will remain in breach of the negative rating triggers in the coming 12-18 months, and a significant turnaround is unlikely given the company's current operations and the highly competitive industry environment.
Garuda's rating incorporates two notches of support from the government of Indonesia (BBB-/Stable).
Garuda's ambitious expansion in international routes in the past couple of years has contributed to its deteriorating financial profile, Fitch notes.