Garuda to meet creditors this week

JAKARTA (JP): National flag carrier Garuda Indonesia said on Wednesday that it would meet with various local and foreign creditors this week to finalize its debt restructuring proposal, one of the airline's executives said.

Garuda's executive vice president finance Emirsyah Satar said that a negotiation team would fly to Singapore on Friday in the hope of striking a deal with the company's creditors.

"It's like we're offering them a menu that they will have to study," Emirsyah said on the sidelines of a hearing with the House of Representatives' Commission IX for financial affairs.

In two to three weeks from now, he said, the creditors would give a response to Garuda's debt restructuring proposal.

He added that some of Garuda's major creditors already knew about the proposal.

They included the European Credit Agency (ECA) with a $610 million stake and state-owned Bank Mandiri with a $103 million stake, he said.

ECA is a consortium of credit agencies in France, Britain and Germany, that leased six A330 aircraft to Garuda.

In July the government approved Garuda's proposal, in which Bank Mandiri would partly guarantee the airline's debts to ECA.

Bank Mandiri's participation was a precondition set by ECA for agreeing to the debt restructuring proposal.

Under the proposal, the bank would provide a guarantee of up to $100 million.

The government also agreed to convert Bank Mandiri's $103 million worth of loans to the airline into five-year bonds bearing a coupon rate of four percent.

Emirsyah said that although ECA and Bank Mandiri knew about the debt restructuring proposal, it was too early to say whether both would support it.

Garuda said that $601 million of its debt was in promissory notes and bank loans, and $1 billion in outstanding payments for leased aircraft.

Its debt restructuring proposal also includes a $422 million bailout by the government for the leasing of 11 B-737 aircraft.

In a written response to the Commission's questions, the airline estimated that continued improvements in its operations would result in a net cash flow of $610 million within the next five years.

Garuda also planned to float its shares on the Jakarta Stock Exchange by 2003.

Emirsyah said that Garuda was considering either inviting strategic investors or floating its shares.

However, he added that a strategic investment did not necessarily mean investment in equity.

"It may not be a company that actually injects money," he explained.

Emirsyah said Garuda might establish joint operations with strategic partners as part its efforts to improve its competitiveness.

He pointed out that joint operations between airlines, such as Star Alliance and One World, were examples of strategic investment that did not involve cross-ownership.

Garuda, he said was eyeing several airlines as potential strategic investors, but he refused to name them.

"If we want to join an alliance, then we must convince everyone that we're up to their standards," he said.

He explained that based on an evaluation conducted by Deutsche Bank, the company's book value by the year 2003 would be in excess of US$1 billion.

He added that the company now suffers from a negative equity of about Rp 1.5 trillion. (bkm)