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Analysis: Garuda completes restructuring, back to black, resumes stock trading
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Passengers walk into the plane from the Garuda Indonesia airline at I Gusti Ngurah Rai airport, Bali, Indonesia, 29 April 2012. Three securities companies have completed the sale of PT Garuda Indonesia Tbk (GIAA) shares of 10.9% or as much as 2.47 billion shares to businessman Chairul Tanjung through PT Trans Airways. The Garuda shares were released at a price of Rp1.5 trillion or Rp620 per share. (JP/R. Berto Wedhatama)
T
roubled-ridden flag carrier Garuda Indonesia completed its massive debt restructuring, allowing the company to turn around to profit last year, after massive losses in the past few years, and its stock resumes trading in the Indonesian Stock Exchange beginning this week after being suspended for the past six months.
Garuda thus began the new year with positive outlook as the government revoked the public activity restriction (PPKM), marking the end of the COVID-19 pandemic. This is expected to boost more travel, including air travel. Garuda expects that the increase in travel will in turn boost seat occupancy and eventually profitability.
In 2022, Garuda’s seat occupancy rate amounted to 72.1 percent, up from only 40.2 percent in 2021. As a result, the company managed to turn around its finance to book a whopping profit of US$3.6 billion in the first nine months of last year, as compared to a loss of $1.7 billion in the same period of 2021 and a total loss of 4.16 billion for the whole year of 2021.
The profit last year was made possible following Garuda’s restructuring of its $9.8 billion debt, 65 percent ($6.3 billion) of which was owed to lessors. Garuda said that the restructuring, that includes haircut and debt conversion into equity, cuts its debt by around 50 percent. But not all debtors agreed to Garuda’s debt-restructuring proposal. Two major lessors under Greylag challenged the restructuring by suing Garuda in a number of jurisdictions.
According to Garuda CEO Irfan Setiaputra, Garuda has won two legal battles in Indonesia and Australia against Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company. Now, Garuda filed a counter legal case against Greyag at the Jakarta District Court to protect other debtors that have agreed to its debt restructuring.
Following the completion of the debt restructuring, which State-Owned Enterprises Minister Erick Thohir described as the country’s biggest corporate restructuring ever, Garuda received the promised state capital injection (PMN) of Rp 7.5 trillion ($484 million) through rights issue. With the capital injection, the government’s ownership in Garuda now stands at 64.54 percent, Trans Airways at 7.99 percent, the public 4.83 percent and creditors now hold 22.63 percent shares.
Irfan promised that the PMN would be the last for Garuda. And the money would not be used to pay out debt or pay compensation to employees, but for aircraft restoration. It aims to do restoration for 60 percent of its total fleet.
Following the debt restructuring and capital injection for Garuda, the Indonesian Stock Exchange on Tuesday opened trading for Garuda stock, which had been suspended since June 18, 2021. Garuda closed at Rp 202 per share on Tuesday. On Wednesday, Garuda (GIAA) dropped to the bottom auto-reject level at Rp 188.
The market is apparently bearish against Garuda. Investors perceive uncertainty over Garuda’s finance, especially the remaining big debt to lessors. Moreover, investors holding Garuda shares just want to unload their holding following a six-month suspension. Analysts see that GIAA is still in falling track.
What’s more
Garuda’s financial report of Sept. 30, 2022 reveals the airline’s total liabilities were down to $8.3 billion from $13.30 billion as of December 2021. Lease liability and liability for aircraft return and maintenance cost remained high at $4.3 billion, down from $6.1 billion. Meanwhile, short-term liability dropped by more than half to $2.2 billion from $5.8 billion.
Garuda still suffered negative equity at $2.4 as of Sept. 30, 2022, down from negative $6.07 billion at end of 2021. Its total assets shrank further to $5.9 from $7.19 billion on Dec. 31, 2021 and $10.79 billion on Dec. 30, 2020. Meanwhile, Garuda's cash and its equivalents improved to $178 million on Sept. 30, 2022 from only $54.44 million at the end of 2021.
Garuda’s revenue increased by 60 percent to $1.5 billion in the first nine months of 2022 from $939 million in the same period of 2021. In addition, Garuda booked an income of $2.85 billion from debt restructuring and another $1.3 billion from gains on debt payment term. As a result, Garuda booked a net profit of $3.7 billion for the first nine month of 2022, compared to a loss of $1.7 billion in the same period of 2021.
What we’ve heard
Sources in the capital market have said that the buying and selling of Garuda Indonesia shares has been dominated by retail investors through securities companies. The trading of state-owned airline stocks is rife among this group, and it included Mirae Aet Sekuritas, Stockbit, Indopremier Sekuritas and Ajaib Sekuritas Asia.
However, investors are still unsure about the results of Garuda's debt restructuring. This is why Garuda shares experienced turbulence. Initially they skyrocketed at the opening on the first day but then slumped in the days following. Another source in the State Owned Enterprises (SOEs) Ministry said that the value of Garuda's debt restructuring was still too small compared to its total debt. That is why Garuda still needed state capital injections (PMN) from the government.
"And it's possible that Garuda still needs another injection of fresh funds from the government for this year," said the source from the SOEs Ministry. The issuance of new debt securities and sharia-based debt securities in December 2022 was actually related to the postponement of the company’s debt payment obligations (PKPU).
Judging from their financial condition, Garuda's cash flow will only suffice for sustained cash and liquidity and will not be enough to pay the remaining debt. As of September 2022, Garuda's remaining debt remains at Rp 76.6 trillion, down from the previous Rp 151 trillion recorded at the end of 2021. With fundamentals like this, large and institutional investors tend to sell Garuda shares, leaving them open to retail investors.
A source in the government added that Garuda was still working on a strategy for the end of public activity restrictions (PPKM). The plan is that 60 percent of the Rp 7.5 trillion injection of PMN funds will be focused on aircraft restoration and maintenance. The rest will be set aside for aircraft operations and fuel. This year, Garuda hopes to operate 66 aircraft. Meanwhile, Citilink has 58 aircraft.
Garuda also filed a lawsuit with the Central District Court in December 2022. This lawsuit was filed against Greylag, the lessor who has sued Garuda in several countries regarding its debt restructuring process.
Disclaimer
This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:
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Business and Economy
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