Jakarta. Flagship carrier Garuda Indonesia has set to raise $600 million from mandatory convertible bonds by the end of this year to keep the airline's afloat through the Covid-19 pandemic. 

An extraordinary general meeting of shareholders approved the bonds issuance plan on Friday, giving way for the government to inject Rp 8.5 trillion ($600 million) fresh capital to Garuda. 

"Shareholders approved the issuance of mandatory convertible bond with maximum tenor of seven years, which must be converted into new series B shares at maturity," Irfan Setriputra, Garuda's president director, said on Friday. 

The government has set aside the fund as part of its Rp 695 trillion economic stimulus package to counter the impact of the Covid-19 pandemic on Indonesia's economy. Sarana Multi Infrastruktur (SMI), the government's investment arm, would represent the deal's government. Irfan said Garuda targeted to wrap up the issuance by the end of the year. 

The bonds would bear a fixed coupon that's equal to Bank Indonesia's seven-day reverse repo rate. The central bank had cut the benchmark interest rate by 25 basis points to 3.75 percent, a historic low, on Thursday.

At the time of maturity, the mandatory convertible bonds would convert to 41.26 billion Garuda shares, priced at Rp 206 apiece. The airline shares closed at Rp 394 a share in trade at Indonesia Stock Exchange Friday. 

According to the plan, the government shares in Garuda would increase to o 76.99  percent from currently 60.54 percent when the bonds mature. CT Corp, a media and retailer conglomerate controlled by Indonesian billionaire Chairul Tanjung, would see its shares diluted to 15.05 percent from 25.81 percent. The public's shares would also be diluted to 7.96 percent from 13.65 percent today.

Garuda Indonesia's management stated that the company needs to strengthen its capital structure to maintain business continuity as the Covid-19 pandemic caused a drastic drop in demand for air transport services.

The airline booked a $1.09 billion loss in the first nine months this year — swinging from booking $123 million net income in the same month last year — and ended up with negative equity of $455 million by the end of September. 

On Friday, the shareholders appointed Prasetio as Garuda's new financial director, replacing Fuad Rizal. Parsetia was the president director of the state-owned banknote printing company Perum Peruri. He had also served as a director at the ailing state-controlled airline Merpati Nusantara Airlines and Telekomunikasi Indonesia.