'BB+' rating given to DGS $225m notes

JAKARTA (JP): Standard and Poor's, an international rating agency, announced yesterday a "BB+" rating for the US$225 million notes issued by DGS International Finance Company B.V.

The $225 million notes will mature in 2007 and are 10 percent guaranteed by PT Daya Guna Samudera TBk (DGS), an integrated fishing company listed on the Jakarta Stock Exchange.

The rating agency said the rating outlook was stable.

It also said DGS's rating reflected the state of its profitable, low-cost fishery operations and favorable growth prospects.

It said DGS's fishery operations were supported by access to abundant fish resources.

It said that this mitigated the company's limited product range, geographic diversity and vulnerable position as a small player in global commodity fish markets.

Ambitious expansion and increasing reliance on debt-funding would seriously harm DGS's financial position in the 1997 fiscal year, the rating company said.

But with strong profitability, operating cash flow and its flexible capital expenditure program the group should maintain its credit rating, it said.

DGS's Benjina operation in eastern Indonesia's Arafura Sea is the group's key earner. It generated about 55 percent of the group's gross operating profit in 1996.

This was supported by Kimaan, the company's latest Arafura Sea operation, which generated a further 10 percent gross profit. Tarempa, in the South China sea, accounted for the remaining 35 percent.

About two-thirds of the company's capital expenditure program is allocated to the Benjina and Kimaan operations, reflecting the region's abundant resources and low level of competition.

The agency said that these two bases and in particular their frozen fish operations would remain DGS's key earners in the medium term.

"This will be supported by an expansion of the fish fillet and surimi operations and new fishing ventures in DGS's unexploited fishing areas," it said.

Despite its dependency on frozen fish sales, DGS should continue to benefit from favorable market conditions in the Asian region in the medium term, particularly as yields decline in traditional fishing grounds, it said.

But the industry is very fragmented and despite its size DGS represents less than one percent of the world's fish market.

The agency said that from an unrealistically strong position in 1996, DGS will take a moderately aggressive line this year as its debt will increase to finance the initial phase of its five- year $1 billion expansion program. (hen)