Indonesia’s flagship carrier Garuda Indonesia defaults on$500 million sukuk

In a statement Indonesia’s flagship carrier, Garuda Indonesia said, it could not distribute coupon payments for its $500 million sukuk after a 14-day grace period, with the airline’s finances still significantly impacted by the coronavirus pandemic.

“Under these circumstances, and in order to ensure the company emerges from the pandemic as a strong and healthy airline, the company announced today that it has reluctantly concluded that it must continue to defer the payment,” said the airline in a statement.

It went on to add, it has appointed Guggenheim Securities LLC as a financial adviser to evaluate overall strategy and improve its finances. Its other strategic partners included law firms Assegaf Hamzah & Partners, and Cleary Gottlieb Steen & Hamilton LLP, and brokerage firm Mandiri Sekuritas.

The decision to defer payments was “a difficult and unavoidable step” and was a stop-gap solution aimed at gaining time so that company can increase its focus on booting its performance, said the company’s CEO Irfan Setiaputra.

Garuda had already restructured the sukuk by extending the maturity by three years.

The sukuk was originally due to mature last year.

Earlier this month Garuda returned two Boeing B737-800 jets to one of its lessors before their lease term ends so as to slash costs.

Garuda is also seeking a suspension of debt payments to other creditors and lessors under a ‘standstill agreement’, said a senior government official.

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