Rating reduction upsets several RI entities

Rating reduction upsets several RI entities

NEW YORK (Reuter): Standard & Poor's lowered Saturday its
long-term foreign currency ratings on several Indonesian entities
following the downgrade on the Indonesian sovereign ratings.

The long-term foreign currency rating on P.T. Bank Negara
Indonesia (Bank BNI) has been lowered to triple-'B'-minus from
triple-'B', while the rating on Bank BNI's US$145 million
unsecured notes due 2007 also has been lowered to triple-'B'-
minus from triple-'B'.

At the same time, Standard & Poor's revised Bank BNI's foreign
currency rating outlook to stable from negative. The bank's
triple-'B' long-term local currency rating, negative local
currency rating outlook, and 'A-3' short-term ratings are not
affected.

Standard & Poor's also lowered the long-term foreign currency
rating on P.T. Hanjaya Mandala Sampoerna to triple-'B'-minus from
triple-'B', but affirmed the company's triple-'B'-plus local
currency rating.

The outlook on both ratings is stable. In addition, the rating
on US$200 million unsecured notes due 2006 issued by the
company's guaranteed subsidiary, Sampoerna International Finance
Co. B.V., also has been lowered to triple-'B'-minus from triple-
'B'.

The long-term foreign currency rating on PT Satelit Palapa
Indonesia also is lowered to triple-'B'-minus from triple-'B',
and the triple-'B' long-term local currency rating is affirmed.

The company's rating outlook is stable, Standard & Poor's
said.

Paiton

Standard & Poor's also lowered its rating on Paiton Energy
Funding B.V.'s senior secured bonds due 2014, to triple-'B'-minus
from triple-'B'.

The bonds are guaranteed by P.T. Paiton Energy Co., a limited
liability Indonesian company established to develop, construct,
own, and operate the $2.5 billion Paiton (Units 7 and 8) power
project, consisting of two 615 MW (net) coal-fired power plants
located in East Java, Indonesia.

The Indonesian currency and financial situation increases
repayment risk to lenders in two ways:

-- Based upon depreciation trends this year, electricity from
dollar-financed IPP projects is about 40 percent more expensive
in rupiah terms to PLN than originally anticipated, thus putting
some financial pressure on PLN; and

In addition, PT Perusahaan Listrik Negara (Persero) (PLN), the
state electricity company, has a purchase power agreement with
Paiton Energy Co. that has a rupiah-denominated tariff structure
indexed to the U.S. dollar-Indonesian rupiah exchange rate.

Hence, the rupiah tariff completely hedges the project's U.S.
dollar debt but electricity becomes more expensive to PLN. PLN
still assumes convertibility risk by agreeing to remit
electricity payments in dollars if the project cannot enter into
foreign-exchange contracts to secure dollars.

-- As PLN's call on the hard currency needed to honor IPP
obligations increases with new IPPs coming online in the next few
years, PLN may find it more difficult to access U.S. dollars to
the extent that Indonesia's reserves become more limited.

Paiton Energy Co. should enjoy preferred access, vis-a-vis
PLN, to dollars than nonstate-owned corporations that have hard
currency obligations. In addition, interest payments due on the
bonds prior to project completion are prefunded and are not at
risk.

The project level risks and strengths, against which Standard
& Poor's based the original rating, remain largely unchanged.

The rating agency said that the outlook is stable.

The project's rating likely will remain at the sovereign
rating level in the near term based on government support, vis-a-
vis the Ministry of Finance support letter, the project's
strategic importance to Indonesia's electricity sector, a fixed-
price, turnkey construction contract, and prospective stable
financial profile.

CE Indonesia

Standard & Poor's affirmed its triple-B'-minus bank loan
rating on CE Indonesia Funding Corp. The outlook is stable.

The sovereign downgrade on Indonesia does not affect the
credit worthiness of the bank loan rating or its underlying
projects. However, should Indonesia's foreign currency rating
fall further, the CE Indonesia rating would similarly drop.

As stated in the original rating, CE Indonesia may delay
issuing a capital markets takeout of the construction loan, or
chose not to issue bonds at all.

In this case, construction loans issued by CE Indonesia to
fund construction at the Dieng or Patuha power projects would
convert to term loans. Upon completion, the projects would
immediately start sweeping 100 percent of excess project cash
flows to begin amortizing project debt.