[postlink]https://gustav-javamedia.blogspot.com/2009/09/garuda-debt-to-fall-on-indonesian.html[/postlink]
Taxpayers may end up having to cover Rp 2.3 trillion ($237 million) in unpaid interest on PT Garuda Indonesia’s debts if the airline is to go public next year, PT Bank Mandiri said this week.
State-owned Mandiri, the country’s largest lender by assets, said on Wednesday that it would ask Garuda and the state to pay Rp 3.36 trillion in principal including interest, three times the bank’s initial estimate of Rp 1.01 trillion. The total takes into account an 18 percent annual rate.
“Our own rough calculation of Garuda’s debt is that it will stand at Rp 3.36 trillion by June 2010,” said Abdul Rachman, Mandiri’s director for special asset management. “This figure is based on 18 percent of internal rate return agreed on in 2001 when [Garuda and Mandiri] agreed to restructure the debt into mandatory convertible bonds.
“If Garuda’s initial public offering does not occur until after June, then that amount will increase,” Abdul added.
Mandatory convertible bonds have a redemption feature that requires the holder to convert them into the underlying common stock.
Garuda is planning an initial public offering in mid-2010, which the government hopes will generate $400 million in capital by selling as much as 40 percent of its equity. The plan to go public was approved by the House of Representatives last year.
Agus Martowardoyo, Mandiri’s president director, said that if all the IPO proceeds went to Mandiri, then Garuda would “not have the money to expand.” Therefore, “we will claim the rest from the government.”
Garuda management disagreed sharply with Mandiri’s figures, saying that the airline owed the bank just $100 million in principal, while the rest was the government’s responsibility as the carrier’s sole shareholder.
Emirsyah Satar, Garuda’s president director, said that based on the carrier’s accounting, the company only owed Mandiri $100 million.
“It’s a big mistake. Garuda does not owe Rp 3.36 trillion,” Emirsyah said. “The MCB must be paid with shares, not money.”
Emirsyah added that in 2001 the government, represented by the Financial System Stability Committee (KSSK), guaranteed Mandiri an 18 percent internal return rate for Garuda’s debt when it turned into mandatory convertible bonds.
“It will not come from Garuda, it will come from the shareholders,” Emirsyah said, adding that the breakdown of the MCB would have been that “from $100 million, Garuda will pay $5 million as goodwill and the rest will be converted into shares. There will be 967,000 shares for Mandiri, equal to Rp 967 billion.”
In 2001, Garuda restructured its $100 million outstanding debt to Mandiri over a period of five years, with the debt maturing in 2006 under an MCB scheme.
But in 2006, when Garuda offered Mandiri the opportunity to convert its loans into shares, the bank refused because the airline was unprofitable. The debt was extended until 2008.
The finalization of Garuda’s debt with Mandiri is vital for the company to go public. All of Garuda’s estimated $800 million is being restructured this year.
If all the IPO proceeds go to Mandiri, says the bank's president-director, Garuda will not have the money it needs to expand.
Taxpayers may end up having to cover Rp 2.3 trillion ($237 million) in unpaid interest on PT Garuda Indonesia’s debts if the airline is to go public next year, PT Bank Mandiri said this week.
State-owned Mandiri, the country’s largest lender by assets, said on Wednesday that it would ask Garuda and the state to pay Rp 3.36 trillion in principal including interest, three times the bank’s initial estimate of Rp 1.01 trillion. The total takes into account an 18 percent annual rate.
“Our own rough calculation of Garuda’s debt is that it will stand at Rp 3.36 trillion by June 2010,” said Abdul Rachman, Mandiri’s director for special asset management. “This figure is based on 18 percent of internal rate return agreed on in 2001 when [Garuda and Mandiri] agreed to restructure the debt into mandatory convertible bonds.
“If Garuda’s initial public offering does not occur until after June, then that amount will increase,” Abdul added.
Mandatory convertible bonds have a redemption feature that requires the holder to convert them into the underlying common stock.
Garuda is planning an initial public offering in mid-2010, which the government hopes will generate $400 million in capital by selling as much as 40 percent of its equity. The plan to go public was approved by the House of Representatives last year.
Agus Martowardoyo, Mandiri’s president director, said that if all the IPO proceeds went to Mandiri, then Garuda would “not have the money to expand.” Therefore, “we will claim the rest from the government.”
Garuda management disagreed sharply with Mandiri’s figures, saying that the airline owed the bank just $100 million in principal, while the rest was the government’s responsibility as the carrier’s sole shareholder.
Emirsyah Satar, Garuda’s president director, said that based on the carrier’s accounting, the company only owed Mandiri $100 million.
“It’s a big mistake. Garuda does not owe Rp 3.36 trillion,” Emirsyah said. “The MCB must be paid with shares, not money.”
Emirsyah added that in 2001 the government, represented by the Financial System Stability Committee (KSSK), guaranteed Mandiri an 18 percent internal return rate for Garuda’s debt when it turned into mandatory convertible bonds.
“It will not come from Garuda, it will come from the shareholders,” Emirsyah said, adding that the breakdown of the MCB would have been that “from $100 million, Garuda will pay $5 million as goodwill and the rest will be converted into shares. There will be 967,000 shares for Mandiri, equal to Rp 967 billion.”
In 2001, Garuda restructured its $100 million outstanding debt to Mandiri over a period of five years, with the debt maturing in 2006 under an MCB scheme.
But in 2006, when Garuda offered Mandiri the opportunity to convert its loans into shares, the bank refused because the airline was unprofitable. The debt was extended until 2008.
The finalization of Garuda’s debt with Mandiri is vital for the company to go public. All of Garuda’s estimated $800 million is being restructured this year.
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