Sukuk Default Resolution for Garuda Airline Could Set Precedent in Indonesia: Fitch Ratings

Garuda Indonesia (Garuda)’s June 2021 default on its USD 500 million Sukuk could provide clarity on Sukuk restructuring, resolution and enforceability in Indonesia, according to Fitch Ratings.

Why it Matters?

Amongst countries where Sukuk issuance is common, notably Indonesia, legal precedence for effective enforcement is deemed deficient. Further, Shariah involvement may make resolving Sukuk defaults more difficult than resolving bond defaults. Garuda’s capital structure adds to the complexity: it comprises several kinds of debt instruments, including Sukuk, asset-backed securitisations, bank loans, factoring and aircraft leases. It is also noteworthy that the sovereign owns over 60% of Garuda’s shares, and the airline’s Suku...