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Indonesian sovereign wealth fund Danantara’s growing momentum in state-firm restructuring is putting fresh focus on its $1.4bn bet on PT Garuda Indonesia, a key test of its ability to revive other troubled companies.The distressed carrier’s full-year results due to be published in March will offer the first clues on whether the bailout is gaining traction, with investors watching for signs that Garuda has begun to erase years of capital deficit. The financial support is Danantara’s largest deployment to date, adding pressure for the rescue plan to deliver results.“All eyes will be on Garuda’s prospective turnaround,” said Harry Su, managing director of research at Samuel Sekuritas Indonesia. “This will set the base for investors to gauge other potential state-owned enterprises success stories by Indonesia’s sovereign wealth fund going forward.”Danantara is in discussion for $500mn in support for steelmaker PT Krakatau Steel and is poised to restructure $5bn of debt owed by the consortium which operates Whoosh, the country’s first high-speed rail, by the end of the year. Construction firms PT Waskita Karya and PT Wijaya Karya are among companies that also need restructuring.The stakes are high for Danantara to get Garuda back on solid footing amid the fund’s broader ambitions to overhaul roughly 900 state-owned firms under its umbrella. A successful turnaround would bolster the fund’s credibility and signal to investors that it can drive reforms across Indonesia’s state holdings.The rescue package for Garuda is expected to bring its assets back above its liabilities by $183mn by the end of the year, the carrier said in a stock exchange filing. Its deficit would have stood at $65mn in June, after taking the capital injection into account, compared to an actual deficit of $1.5bn, it said.In a sign of improving investor sentiment, the company’s shares have climbed 51% since late June, when Danantara first aided the carrier with a $405mn loan. Its dollar-denominated sukuk maturing in 2031 has gained 42% as well to trade at around 90 cents on a dollar, underscoring firmer recovery expectations.Still, some analysts have raised doubts about the sustainability of Danantara’s support for Garuda, noting limitations on the use of the capital injection and that the carrier is operating with only about half the fleet it had before the pandemic. Rising leasing costs for new planes and the absence of a longer-term plan also pose headwinds.“The $1.4bn won’t be enough to put the airline on stable footing,” said Shukor Yusof, founder of aviation consultancy Endau Analytics Pte. “Garuda needs to get rid of all the excesses, fix the years of mismanagement and someone in the government or Danantara has to drive the changes to turn the airline around.”Garuda’s recovery will be key, not just as a validation of the fund’s model but also due to the carrier’s national importance. The 76-year-old airline is a major employer and a key mode of transport for the country made up of 17,000 islands over an area spanning the distance from New York to London. It is also set to play a role in the trade deal between Indonesia and the US with aircraft purchases.“Danantara seems to be taking things a lot faster with all these mergers and streamlining of the state-owned enterprises,” said Rain Yin, sovereign analyst at S&P Global Ratings. “That is one efficiency that we do seem to be observing in this process and also in supporting the SOEs under it.”The restructuring of Garuda will provide a proof of concept on how Danantara can turn around other state companies and allow them to grow in a sustainable way. The outcome will shape the fund’s plan to consolidate the state sector into roughly 200 competitive, globally focused companies and support President Prabowo Subianto’s target of 8% annual economic growth.“Danantara is a big bet” for Indonesia, said Alessandro Gazzini, managing director at Alvarez & Marsal Inc in Jakarta. “This will be a test case for long term solution of troubled state-owned companies and whether Danantara can find a way to introduce more business and market oriented solutions to solve some of these problems.” 

Indonesia’s sovereign wealth fund Danantara is reducing its financial support for flag carrier PT Garuda Indonesia, putting in doubt the distressed airline’s ability to refresh its fleet.Garuda will now receive 23.7tn rupiah ($1.4bn) from PT Danantara Asset Management, an arm of the wealth fund, through a private placement, which comprises a cash injection and a loan conversion, according to an exchange filing. The airline was supposed to obtain $1.8bn under a plan drawn up last month.In addition to covering finance expenses and providing working capital, Danantara Asset would have helped with fleet expansion. However, Danantara Asset notified Garuda that “there is also an adjustment to the planned use of funds, which no longer includes fleet expansion,” the airline said in a separate statement.The carrier has struggled financially since the Covid-19 pandemic and has grounded an increasing number of planes because of difficulties making maintenance payments. The number of idled jets operated by the company and subsidiary low-cost carrier PT Citilink Indonesia rose to 51 as of June, nearly 40% of the group’s total fleet, and up from 33 a year ago.Leasing new planes comes with high price tags amid a dearth of available aircraft and a global surge in travel. The carrier earlier this year paid twice as much to lease a Boeing Co 737 Max jet than it does for older 737 jets.Garuda should focus on getting some of its grounded planes flying again, said Gerry Soejatman, a Jakarta-based independent aviation analyst.“Ordering new planes for early delivery is going to be very expensive, and probably less prudent financially,” he said. “It is better to see the grounded jets being put back into service or returned to lessors before Garuda place big aircraft orders.”