Garuda plans Indonesia’s first global sukuk to tap Middle East dollar wealth
The company signed a $400m Islamic loan facility with National Bank of Abu Dhabi and Dubai Islamic Bank
Indonesia’s state-owned airline plans the nation’s first corporate global sukuk sale to tap dollar wealth in the Middle East and cut funding costs.
PT Garuda Indonesia, which uses the national symbol of a mythical eagle as its insignia, may issue $500 million (Dh1.8 billion) of US currency Shariacompliant debt in April, widening its investor base, Finance Director Askhara Danadiputra said in a Tuesday interview in Jakarta. Emerging-market dollar bonds yield an average 6 per cent, compared with 7.1 per cent for rupiah-denominated notes, JPMorgan Chase & Co indexes show.
Garuda will set a precedent for Indonesian companies after the government sold its first international Islamic bonds in 2009. The investment-grade offering may attract buyers in the Gulf Cooperation Council amid the worst start to a year for global sukuk issuance since 2010. The region accounted for 32 per cent of the $46 billion total sales last year versus 49 per cent in 2013, reflecting declining crude prices that have benefited airlines.
“The successful outcome of Garuda’s trailblazing effort will hopefully be the catalyst to spur other Indonesian blue chips to ride the momentum,” Alhami Abdan, the Kuala Lumpurbased head of international finance and capital markets at OCBC Al-Amin Bank Bhd, said by email on Wednesday.
Garuda’s Danadiputra said the Islamic bond will help diversify the airline’s funding base and will be used for refinancing. The company has $187.6 million of floating-rate notes coming due in 2016 after the debt was restructured in 2010.
The airline, which is ranked BBB+ by Fitch Ratings under its national long-term ratings, plans to reduce debt to about $780 million in two years, from $980 million currently, he said.
The company signed a $400 million Islamic loan facility with National Bank of Abu Dhabi and Dubai Islamic Bank on February 18 to bridge financing needs before the dollar sukuk offer, it said in a statement to the stock exchange. The two banks will be among five lenders hired to arrange the debt sale, Danadiputra said.
Garuda joins other airlines such as Malaysian Airline System, Emirates, Dubai Aviation Corp and AirAsia in selling sukuk to tap Islamic banking assets that Ernst & Young forecasts will double to $3.4 trillion by 2018.