Arif Wibowo, Garuda’s new president director and chief executive spoke to The Jakarta Globe on Jan. 16, 2014 (BeritaSatu Photo/Utan)

Garuda Indonesia Inks Currency Contract

FEBRUARY 02, 2015

Flag carrier Garuda Indonesia and three lenders, including state-owned Bank Negara Indonesia, signed a cross-currency swap hedging agreement worth a total of Rp 1 trillion ($79 million) amid sluggish rupiah exchange rate against the US greenback on Monday.

The airline is the first state-owned company to carry out such an agreement, which is expected to minimize the company’s risks from exchange rate volatility. Garuda Indonesia president director Arif Wibowo said the move was needed to protect the company from swelling operational cost risks that stem from the rupiah depreciation against the US dollar.

Arif said that 70 percent of the airline’s operational costs, including aviation fuel purchase, aircraft maintenance and aircraft lease, are in US dollar denomination.

Garuda signed the cross currency swap hedging agreement with state lender BNI and private lenders Bank CIMB Niaga and Standard Chartered Bank to control its dollar spending.

“The cooperation is also related to the government’s regulation. We are the first state-owned company that made hedging cooperation,” Arif said on Monday.

He added that the collaboration is also aimed to cover the company from rising interest payments from rupiah-denominated bonds issued by Garuda.

The cross currency swap hedging cooperation has a maturity period of three and-a half years and will expire on July 5, 2018 — the same date its rupiah-denominated bonds mature.

Garuda Indonesia director of finance, risks, and information technology I. Gusti Ngurah Askhara Danadiputra added that the transaction will help the company minimize its risks against surging operational costs and estimated the transaction’s efficiency at $ 17.1 million.

“By pegging the rupiah exchange rate to the dollar, rupiah payments for operational costs in US denomination will become stable and thus will turn the operational activities of the company more consistent,” Askhara said.

BNI is currently the only state bank that can offer a comprehensive financial solution, including hedging funds, said BNI president director Gatot M. Suwondo. He added that this is its second hedging transaction with the flag carrier.

Meanwhile, Reuters reported that Garuda Indonesia has delayed a $500 million bond issue in Singapore until at least April as “the market is a bit quiet,” its chief financial officer said Monday.

“We will look at further developments in April.”