Abu Dhabi, UAEWednesday 20 November 2019

Indonesian airline Garuda's stocks fall to six-month low after earnings restatement

Flag carrier was found to be in breach of accounting rules while stating its 2018 earnings

The Financial Services Authority, known locally as OJK, slapped a fine of 100 million rupiah ($7,078) on the airline and each of its directors.  REUTERS
The Financial Services Authority, known locally as OJK, slapped a fine of 100 million rupiah ($7,078) on the airline and each of its directors.  REUTERS

Indonesia’s market regulator ordered PT Garuda Indonesia to restate its 2018 financial results after finding the national carrier breached accounting rules. The shares plunged to a six-month low.

The Financial Services Authority, known locally as OJK, also slapped a fine of 100 million rupiah ($7,078) on the airline and each of its directors. The directive to restate earnings within 14 days follows investor complaints of accounting irregularities related to a contract with a startup company to provide in-flight entertainment.

The OJK “has issued a written order to PT Garuda Indonesia to fix and restate their 2018 financial report and conduct a public presentation of the revision within 14 days,” the agency said in a press statement.

The Indonesia Stock Exchange also fined Garuda 250 million rupiah and issued a written warning, according to a separate statement. The carrier booked revenue of $211.9m from PT Mahata Aero Teknologi, its annual report showed. That helped Garuda swing to a profit of $809,846 last year from a loss in 2017.

“This will lead to a negative sentiment toward the company, overshadowing its achievement in the first quarter,” PT Ciptadana Sekuritas Asia analyst Fahressi Fahalmesta said in a text message. “We will review our recommendations after this event.” He has a buy recommendation on the stock, with a target price of 620 rupiah.

The shares slumped as much as 7.6 per cent to 366 rupiah in Jakarta, trimming the stock’s gain this year to 26 per cent.

There were no accounting violations in recording the revenue from the deal with Mahata, but the airline respects the opinion of the regulator and the different interpretations of the financial statements, Garuda spokesman Ikhsan Rosan said. Garuda will study the order further, he said in a statement.

Garuda showed signs of improvement as it returned to profit in the first quarter after new President Director I Gusti Ngurah Askhara Danadiputra introduced a series of initiatives to turn around the airline.

Garuda’s failure to disclose and explain the disagreement of two of its commissioners about the inclusion of revenue from Mahata broke the rules, Fakhri Hilmi, deputy commissioner for capital market supervision at OJK, told reporters in Jakarta on Friday. The regulator also froze the license of Garuda’s auditor Kasner Sirumapea for a year.

The auditor was guilty of claiming upfront receivables expected over 15 years from the contract with Mahata, according to Hadiyanto, secretary general at the finance ministry.

The fine and order to restate accounts are “firm steps by OJK to maintain public trust in the Indonesian capital market,” the regulator said.

Updated: June 28, 2019 02:30 PM

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