Garuda's Debt Restructuring Curbed

The restructuring of publicly listed PT Bank Mandiri's mandatory convertible bond (MCB) loan to PT Garuda Indonesia may be curbed by Central Bank Regulation (PBI) 78/2/2005 on Commercial Bank Asset Quality Assessment.
The central bank is trying to make the conversion benefit both parties. In addition, the central bank asks for a guarantee that the restructuring will be run and not be dragged on for long like before.
BI Regulation 78/2/2005 doesn't regulate the restructuring of written-off MCB debt. In the meantime, Garuda actually has fulfilled the criteria to have restructuring, namely it has good business outlook and finds difficulty in paying its main debt or debt interest
However, Garuda's debt to Bank Mandiri has violated Article 65 clause 2 of the BI regulation requiring equity to be written off a bank's balance if the equity has surpassed more than five years.
Garuda's MCB had been converted to Mandiri-owned equity during 2001-2006. Therefore, if the equity persisted at the moment, it had violated the regulation since five years had already passed.
According to the Financial Sector Policy Committee's (KKSK) restructuring plan in 2001, Garuda's debt to Bank Mandiri was agreed to at US$80 million plus IDR168.4 billion or US$103 million.
The debt would be converted to shares during Garuda's initial public offering, which was scheduled for 2003. However, the IPO has been delayed until now since Garuda had been burdened with liabilities.
Garuda's debt will balloon to IDR3.36 trillion assuming the IPO will be realized in June 2010 as every year Garuda had to bear a required internal rate return (IRR) of 18%. IRR represents accrued interest leading to bigger required return than the main debt.
Garuda plans to pay 5% of its main debt of IDR1.01 trillion to Bank Mandiri or around IDR50 billion before the IPO. The remaining main debt will be converted to a 10.6% stake in Garuda, while an IRR of IDR2.35 trillion will be paid by the government.