Indah Kiat's US$500m notes rated 'BB-'

JAKARTA (JP): International rating agency Standard & Poor's has given a "BB-" rating to Indah Kiat Finance Mauritius Ltd's $500 million guaranteed notes due 2007.

Standard & Poor's also raised its rating on Indah Kiat International Finance Co B.V.'s 37 billion Japanese yen (US$330 million) unsecured bonds due 2000 to "BB-" from "B+".

The two companies are affiliates of publicly listed PT Indah Kiat Pulp & Paper Corp, known as Indah Kiat.

Standard & Poor's has given a "BB" corporate credit rating to Indah Kiat, which has a stable outlook.

Parent Indah Kiat will unconditionally guarantee Indah Kiat Finance Mauritius' $500 million notes on an unsecured basis.

"The rating reflects Indah Kiat's very competitive pulp operations built on cheap fiber and labor resources," the rating agency said Wednesday.

Indah Kiat has four large, cheap pulp mills which supply its own commercial and industrial paper converters and others within its group.

The company's pulpwood needs are met through an exclusive long-term supply contract with a related company, PT Arara Abadi, which has long-term forest concessions.

It has announced a US$1 billion rights issue, to be settled in August. The proceeds are already committed to two new paper machines that can make 800,000 metric tons a year.

Indah Kiat is 54.39 percent owned by PT Purinusa Ekapersada -- a subsidiary of the Sinar Mas group owned by Eka Tjipta Widjaja -- 19.99 percent by CHP International Corp of Taiwan, 8.54 percent by YFY Global Investment Corp of Taiwan and by public investors.

Indah Kiat is a significant operating entity in the Asia Pulp & Paper Co Ltd (APP) group, an Indonesian forest product group with operations in India and China.

APP is the 86.5 percent-owned holding company for the Sinar Mas group's forest product operations.

"While APP group's operating cash flow will continue to be positive, internally generated funds are unlikely to be sufficient to meet substantial and ongoing capital commitments," Standard & Poor's said.

It said that financial measures could improve in the longer term, but this would be constrained by the group's ambitious growth plans and aggressive financing.

The rating agency said forest product demand should remain favorable globally in the medium term.

It predicted that forest product pricing would continue to cycle from the current low levels to modestly higher prices in the next year or so. (rid)