Morning Views Asia: E House China Holdings, Garuda Indonesia (Persero)

Garuda Indonesia - Event Flash - Restructuring Proposal Highlights - Lucror Analytics

Asia Fixed Income Analyst

Derek Silva

Credit

A classic book of the Tibetan Dzogchen tradition, The Flight of the Garuda, uses the sacred eagle which can immediately take flight upon leaving the egg as a symbol of its practitioners also being able to break free. Just as the bird is ready as soon as the egg splits open, Indonesia’s Garuda Airlines is eager for travel restrictions to crack and open up the skies again.  The timing of Covid-19 was particularly brutal for Garuda, as it was making preparations at the turn of the year to launch a new bond issue to refinance the 5-year bond which was maturing in June 2020. It had made a nice turnaround to a small net profit in FY 2019 after loss the prior two years and its EBITDA also had a strong rebound.But instead of a new bond to replace the old one, Garuda had to cancel the bond sale and was forced to amend and extend its bond by three years to 2023. It could be worse: just this week, Malaysia Airlines <a href="https://www.reuters.com/article/idUSKBN26N0UQ" target="_blank" rel="noopener">reportedly sent a letter</a> to lessors that the group is unlikely to be able to make payments owed after November unless it receives more State funding.Garuda is counting on a rebound in domestic travel to come to the rescue. And, speaking of rescue, the government has already agreed to provide financial help, with more details coming in the next month. So, with the bonds priced well below par in the 68-area and a yield-to-maturity (2023) at around 23%, it’s tempting to take a punt, right? Not quite. While Garuda isn't heading for a full-blown default like Thai Airways, there are still enough risks to keep us on the sidelines. It looks fairly priced for the risks that remain.

A classic book of the Tibetan Dzogchen tradition, The Flight of the Garuda, uses the sacred eagle which can immediately take flight upon leaving the egg as a symbol of its practitioners also being able to break free. Just as the bird is ready as soon as the egg splits open, Indonesia’s Garuda Airlines is eager for travel restrictions to crack and open up the skies again.  The timing of Covid-19 was particularly brutal for Garuda, as it was making preparations at the turn of the year to launch a new bond issue to refinance the 5-year bond which was maturing in June 2020. It had made a nice turnaround to a small net profit in FY 2019 after loss the prior two years and its EBITDA also had a strong rebound.But instead of a new bond to replace the old one, Garuda had to cancel the bond sale and was forced to amend and extend its bond by three years to 2023. It could be worse: just this week, Malaysia Airlines reportedly sent a letter to lessors that the group is unlikely to be able to make payments owed after November unless it receives more State funding.Garuda is counting on a rebound in domestic travel to come to the rescue. And, speaking of rescue, the government has already agreed to provide financial help, with more details coming in the next month. So, with the bonds priced well below par in the 68-area and a yield-to-maturity (2023) at around 23%, it’s tempting to take a punt, right? Not quite. While Garuda isn't heading for a full-blown default like Thai Airways, there are still enough risks to keep us on the sidelines. It looks fairly priced for the risks that remain.

Garuda Indonesia (Persero)

The Plight of the Garuda