Pefindo lowers rating of pulp and paper firms

Pefindo lowers rating of pulp and paper firms

JAKARTA (JP): Local rating agency Pefindo has downgraded its
long-term ratings on three companies and reaffirmed five others
in the pulp, paper and plywood sectors as the monetary crisis
starts to bite.

The downgraded companies are Fajar Surya Wisesa, from BBB to
BB+ with a negative outlook; PT Surabaya Agung Industri Pulp dan
Kertas, from BB- to B with an alert negative outlook; and PT
Artika Optima Inti, from BBB to BBB- with a negative outlook.

The reaffirmed companies are PT Pabrik Kertas Tjiwi Kimia, PT
Pindo Deli Pulp and Paper, PT Indah Kiat Pulp and Paper -- all at
A with a negative outlook -- and PT Riau Andalan Pulp and Paper
at BBB+ with a stable outlook.

"The downgrade reflects primarily a deteriorating financial
profile as the burden of the companies' foreign currency
obligations increase due to further deterioration of the rupiah
against the U.S. dollar," Pefindo said in a statement over the
weekend.

The reaffirmations reflect the significant positive benefits
of the companies' export receipts relative to the weakening
demand and increasing burden of foreign currency obligations.

Pefindo said most companies under its review were export
oriented with an average portion of 50 percent of its total
output. Almost all rely heavily on foreign borrowing, accounting
for 80 percent to 90 percent of their debts.

As of June 1997, Pefindo said, the pulp, paper and plywood
companies it rated had US$6.2 billion in foreign currency
outstanding loans.

The following is a summary of Pefindo's rating downgrade and
reaffirmation on pulp, paper and plywood companies:

* Fajar Surya Wisesa, downgraded from BBB/stable to BB-
/negative.

The downgraded rating reflects the impact of the monetary
crisis on the company's business and financial profile. The
company relies heavily on the domestic market because 65 percent
of its output is sold on the domestic market. Besides, 95 percent
of its debts have been secured from offshore sources. Therefore,
weakening domestic demand, increasing imported raw material
costs, and the increasing burden of its foreign currency
obligations eroded the company's financial position.

* Surabaya Agung Industri Pulp dan Kertas, downgraded from BBB-
/negative to B/alert negative.

The downgrading of the company's rating reflects an expected
sharp deterioration in cash-flow protection and severe liquidity
pressures due to the monetary crisis. Surabaya Agung has a
vulnerable financial position because of its heavy foreign debt
service burden, 80 percent of its debts, of which only a small
portion have been hedged. Meanwhile, its short term debts are
twice the level of its cash balance. In addition, Surabaya
Agung's sales are concentrated in the domestic market and to a
lesser degree in the weakening Asian markets. Furthermore, the
company's cost structure is also less favorable as about 50
percent of its raw materials are imported and capacity
utilization is low following the recent completion of a new paper
mill.

* Artika Optima Inti, from BBB/negative to BBB-/negative

The downgrade reflects the company's somewhat deteriorating
business due to the crisis and increasing foreign exchange
exposure. About 80 percent of its debts are denominated in U.S.
dollars, totaling $104 million as of Oct. 1997 of which $64
million will mature in 1998. Meanwhile it exports 90 percent of
its products, mainly plywood, block board and others.

* Barito Pacific Timber, reaffirmed A+/stable to A+/negative

Pefindo has reaffirmed Barito Pacific's rating but changed the
outlook to negative from stable. The negative outlook reflects
weakening demand, due to economic downturn, in some of its major
offshore markets such as Japan and South Korea. It also addresses
a potential weakening cash flow protection due to an increased
burden of interest and principle payments of foreign currency
debts.

* Indah Kiat Pulp and Paper, Pabrik Kertas Tjiwi Kimia, Pindo
Deli Pulp and Paper -- all in the Asian Pulp and Paper group --
reaffirmed from A/stable to A/negative.

The rating reflects their dominant position in the domestic
market and capability of penetrating export markets, supported by
unsustainable cost position and the group's vertical integration.
The negative outlook, however, reflects potential weakening
demand as the crisis persists, which will reduce their income
from domestic and other Asian markets and in turn constrain the
ability to offset their rising foreign currency obligations.
(rid)