Garuda Indonesia, the country’s flagship airline, has finalised a debt restructuring plan with creditors in Europe, paving the way for an initial public offering. Elisa Lumbantoruan, Garuda’s finance director, and David Brackenridge, creditor representative from Lloyds Banking Group, completed the deal in London on Saturday.
Plans to sell about 30% of the airline’s equity had been scheduled for the third quarter of this year but that was delayed pending a deal on debt restructuring. Talks on the restructuring have been taking place since 2005. In October 2009, the carrier restructured $76 million of debt owed to PT Pertamina, Indonesia’s state oil and gas company. In December the same year it agreed with PT Bank Mandiri to convert 967 billion rupiah of debt into a 10.61% equity stake. In January 2010, the airline won bondholder permission to restructure $122 million of floating-rate notes.
The IPO is expected to be worth more than Rp 4 trillion ($444 million), Garuda said in a statement released on Sunday after the European Export Credit Agency agreed to extend the maturities of about $288 million in loans to 2016. The agency agreed to be repaid in installments of $45 million and $60 million per year.
Funds from the IPO, expected for February, will go toward purchasing new aircraft, adding more destinations and improving maintenance standards. The airline also hopes to extend into India and further into Europe with new routes targeting London, Frankfurt, Paris and Rome.
Mandiri Sekuritas, Danareksa Sekuritas and Bahana Securities are arranging the share sale, while Citigroup and UBS are the international sales agents.
Talk of this IPO has been banded about for close on 12 years, now finally the end is in sight and the airline can move forward and expand. Indeed the airline needs the money urgently as it has been shopping of late, it has ordered six Airbus A330s, has firm orders for 10 777s and 25 737s, with options on another 25. The plan is to extend aircraft from the current 84 to 120 by 2014. But if you think that the airline needs cash then spare a thought for Indonesia’s state owned bank, Bank Mandiri, which needs to offload its stake in the airline as soon as it can to boost its capital base.
Garuda Indonesia declined to provide 2011 forecasts ahead of the share sale but said profit would not increase as much as expected this year because of its aircraft purchasing investment plan. The airline had been banned from EU airspace for quite some time but resumed services to Europe in June this year after the lifting of a ban imposed on all Indonesian airlines following a number of fatal domestic air accidents.
Do not think for one minute that this is clear cut deal and an IPO will leave Garuda dancing off into the sunset. The market is by no means stable and the fate of Cebu Pacific (see the APAC Finance section today) should be a warning to many that an IPO can lead to significant problems all too easily.