The rights issue will allow the government to top up Garuda's capital by 7.5 trillion rupiah, a plan that had been approved by the parliament in April, according to a prospectus for the transaction.

The government's additional investment is part of Garuda's promise to debtors to strengthen its capital following the airline's court-supervised debt restructuring programme agreed in June.

Garuda plans to offer shares at a price range of 182 to 210 rupiah a piece, meaning in total it would be able to raise up to 14.3 trillion rupiah, including the government's capital top up, if other shareholders fully subscribe to the sale at the highest price.

"The company will optimise the additional capital mainly for maintenance, aircraft restoration, fuel, plane leases...The (proceeds) hopefully can strengthen the company's business outlook," chief executive Irfan Setiaputra said in a statement.

Shareholders also approved the conversion of 4.2 trillion rupiah worth of liabilities into equity - part of the debt restructuring agreement.

Assuming all stakeholders participate in the rights issue at the maximum price, the government's stake in the carrier would shrink to 51.25% from 60.54% previously.

The stake held by its second-biggest shareholder, PT Trans Airways, owned by Indonesian billionaire Chairul Tanjung, will be diluted to 21.90% from 28.27%.

Garuda's books have improved amid the easing of travel restrictions, with the airline posting a $3.76 billion net profit in the first six months of this year, the company said.

($1 = 15,385.0000 rupiah)

(Reporting by Stefanno Sulaiman; Editing by Gayatri Suroyo and Ed Davies)