Polytama's secured notes rated B2

Polytama's secured notes rated B2

JAKARTA (JP): Moody's Investor Service has assigned a B2
rating to the proposed $200 million guaranteed secured notes due
2007 of Polytama International Finance B.V.

The notes are guaranteed by PT Polytama Propindo (Polytama),
an Indonesian chemical company.

This is the first time Moody's has rated the debt of either of
these entities.

Moody's said Thursday that positive factors supporting the B2
rating include Polytama's position among the leading local
producers of polypropylene (PP) in Indonesia, a competitive
position that benefits from tariff protection, and a feedstock
price structure that offers the company the potential to mostly
avoid what Moody's expects will be higher prices for the
feedstock propylene in Asian markets.

Factors limiting the rating include the company's small
revenue base and narrow product slate, high financial leverage
and limited financial flexibility, and significant margin
volatility attributed to the cyclicality of its products and raw
materials.

The possibility of further disruptions to feedstock supplies,
as the company experienced on several occasions since commencing
production in 1995, could also impact margin volatility and
represents a risk to the firm's profitability, Moody's added.

Formed in 1993, Polytama is a small, non-integrated Indonesian
polypropylene producer with a nameplate capacity of 180,000 tons
per year, making it the second largest supplier of PP in local
markets, where the primary end-uses include food packaging,
carpet backing, woven sacks, yarns and ropes.

A very low level of per capita consumption of plastics in
Indonesia supports a favorable growth outlook for PP demand.

During 1996, the first full year of operation, the company
produced roughly 138,000 tons of PP, generating sales of Rps. 279
billion ($US117 million) and net profits of Rps. 35.2 billion.

On a pro forma basis (including interest costs on the new debt
and assuming a higher average net profits approximate Rp 20
billion and generate EBITDA/interest of just under 2.0 times,
according to Moody's analysis.

However, near term profits and coverage measures are expected
to come under pressure as PP supply is expected to exceed demand
on global markets.

In the medium term, dividends from Polytama II should raise
the level of earnings and cash flow. Polytama's competitive
position and product pricing benefit from the current 40 percent
tariff on imported PP.

However, this advantage is likely to erode over time given the
government's position to reduce tariffs gradually as agreed with
other ASEAN countries by 2003.