National flag carrier Garuda Indonesia (GIAA) is mulling over a global sukuk issuance this year, with the aim of raising US$500 million to refinance its maturing debt.
According to I Gusti Ngurah “Ari” Askhara Danadiputra, Garuda’s chief financial officer and risk management head, the bond issuance will probably take place in mid-April.
“We are still in the preparation stage and we have not officially appointed any financial institution to arrange the bond issuance, but we are hoping to secure funds from investors in Asia, Europe and the Middle East,” he told reporters on Tuesday.
Part of the funds generated from the sukuk sale will be used to refinance the airline’s debt, worth $350 million, which will mature this year. The remaining $150 million of the funds will be used for various general purposes, including capital expenditure.
“The selection of sukuk is based on our desire to attract Middle Eastern investors. It may be easier for us as well because sukuk issuance does not require the issuer to obtain credit ratings from rating agencies,” Ari said.
He added that the debt papers would most likely be listed overseas, in a Middle Eastern country. If all goes ahead as planned, Garuda will become the first Indonesian company to offer global Islamic bonds.
In preparation for the bond issuance, Garuda has obtained a bridge loan worth $400 million from the National Bank of Abu Dhabi (NBAD) and Dubai Islamic Bank PJSC (DIB).
The loan agreement — which will mature after 12 months — was signed on Feb. 18, as stated in a document submitted by the company to the Indonesia Stock Exchange (IDX).
According to Ari, the bridge loan will function as a “back stop facility” if the sukuk issuance does not go according to plan.
Back stops are commonly used as a guarantee that a bond issuer will still obtain the needed funds, even if the debt paper sale fails.
“The back stop facility will mature after seven years and by then, the facility will be worth $500 million, equal to our sukuk target,” he said, adding that the NBAD and DIB had expressed interest in being coordinators in the sukuk sale.
Meanwhile, Ari said that the airline aimed to post net profits from its operations this year, overturning net losses that it recorded during the January to September 2014 period. The company has not yet published its 2014 full-year financial report.
“To overturn the situation, we decided to cut several routes that were not profitable, reduce flight frequencies for other routes and increase flight frequencies for routes that are making money, such as the one to Jeddah [in Saudi Arabia],” he said.
The company plans to open up new routes across Java as well as use smaller aircraft to boost its business.
Ari also claimed that the airline had identified up to $148 million of funds that it could potentially save through various cost efficiencies.
A $17 million portion of those savings came from a cross-currency swap agreement that it recently signed with lenders Bank Negara Indonesia (BNI), Standard Chartered Bank Indonesia and CIMB Niaga.
Following the announcement of its sukuk plan, Garuda saw its shares slump 1.8 percent to Rp 535 (4 US cents) per share on the IDX from a day before
(The Jakarta Post / 25 February 2014)---
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