Garuda seeks Rp 2 trillion from bond sale for fleet expansion

National flag carrier PT Garuda Indonesia has started offering up to Rp 2 trillion (US$203.52 million) in bonds as part of the company’s expansion plan, which includes strengthening its fleet.

The offer is the first tranche of debt paper issuance totaling a possible Rp 4 trillion spread over two years.

“Approximately 80 percent [of the funds] will be used for predelivery payments on a number of aircraft, including the Boeing 737-800NG, B777-300ER, Airbus 330-300 and A320,” PT Garuda Indonesia president director Emirsyah Satar said at a public presentation on Tuesday.

The bonds have a five-year maturity term and a coupon rate of between 8.25 percent and 9.25 percent.

The proposed bonds received a national senior unsecured rating of A by Fitch Ratings and are scheduled to be listed on the Indonesia Stock Exchange (IDX) on July 8.

Garuda’s rating reflected its market leadership in the domestic full-service carrier segment, as well as its weak liquidity position, Fitch said in an email.

An “A” rating denotes expectations of low credit risk, according to its website. The capacity for financial commitments is considered strong.

This capacity may be more vulnerable to adverse business or economic conditions than is the case with higher ratings.

In addition, Emirsyah said Garuda was still on course with its plan for a rights issue.

Garuda, which went public in 2011, is planning to release a maximum 10 percent of its shares
for the issuance, which is expected to take place in the second half of this year.

The company’s recent stakeholders’ meeting set a capital expenditure (capex) budget between $300 million and $400 million.

It plans to purchase 24 new aircraft, bringing its fleet to a total of 139 aircraft by year’s end.

Garuda has ordered 10 B777-Extended Range (ER) aircraft, of which four are expected to arrive by the end of the month, despite reports of engine problems with the plane.

The remaining six aircraft will be sent in phases between June and November this year.

The aircraft purchases support in part its Quantum Leap program, which will see the company operating 194 aircraft by the end of 2015, with an average fleet age of five years.

It also plans to turn Medan, North Sumatra, into a regional hub with eight routes, adding routes to London, England; Brisbane, Australia, and Penang, Malaysia, to its list of international destinations.

With its expansion, Garuda estimates that its passenger traffic will rise by up to 20 percent to 24.5
million people.

Garuda recorded a strong performance last year, with net profits jumping 72 percent to $110.6 million and revenue surging 12.1 percent to $3.47 billion.

Following the public presentation, Garuda’s shares closed at Rp 510 on Tuesday, down 5.56 percent from the day before.