Janeman Latul

Garuda said it will use proceeds from its planned IPO next year, which may yield as much as $400 million, to lease more aircraft. (Antara Photo)

Garuda Plans to Spend $100m Next Year To Lease New Planes, Upgrade Facilities

Flag carrier PT Garuda Indonesia said on Monday that it would allocate $100 million for capital expenditure next year, with some of the money to be spent on leasing new planes.

Part of the funding would come from the state-owned airline’s initial public offering, planned for mid-2010, it said.

“The money will be used to lease several new planes and the remainder will be used to upgrade Garuda’s infrastructure and facilities,” said Garuda chief financial officer Eddy Porwanto, during the launch of two new additions to the fleet — an Airbus 330-200 and a Boeing 737-800.

Eddy said Garuda would try to optimize internal cash flow to finance the capital expenditure next year before looking for more loans. “Hopefully we can finance some of the capex from our own internal cash,” he said.

Garuda is currently restructuring its $800 million debt to prepare for its IPO in June or July. Several of its creditors have agreed to restructure their loans including Europe’s Export Credit Agency, which Garuda owes $450 million, and state-owned oil and gas company PT Pertamina, to which Garuda has a $76 million aviation fuel debt.

Garuda president director Emirsyah Satar said on Monday that the company was optimistic it would raise as much as $400 million in the IPO.

“Whatever happens to the market, I’m confident that Garuda will still get $300 million to $400 million in the IPO,” said Emirsyah. “We will release as much as 40 percent of our shares to the market.”

The money raised would be spent on capex and debt repayment, Emirsyah added.

Garuda is now waiting for a final debt settlement deal with the country’s largest lender, PT Bank Mandiri, worth $100 million, before it select underwriters and financial advisors for the IPO.

Both Garuda and Mandiri have agreed in principle to execute a scheme involving the conversion of mandatory convertible bonds issued when the debt was previously restructured in 2001. The bonds require the holder to convert them into ordinary Garuda shares.

The airline said that once the deal was approved, Mandiri could end up owning 10.6 percent of Garuda, despite the current law stipulating that banks cannot hold shares in companies.

Bank Indonesia has already indicated it will grant a waiver in this case because Mandiri will only own the shares temporarily until Garuda has its IPO.

Abdul Rahman, Mandiri’s director for special asset management, said on Monday that he expected the deal to be approved this week. “Both Garuda and Mandiri have already agreed on the matter and we’re only waiting for central bank’s approval to officially sign it,” he said.

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