S & P affirms triple-B rating on DSPL Finance

S & P affirms triple-B rating on DSPL Finance

NEW YORK (Reuter): Standard & Poor's affirmed yesterday its triple-B' rating on DSPL Finance Co. B.V.'s US$150 million 9.12% senior secured notes due 2010, which are guaranteed by Dayabumi Salak Pratama Ltd.

The rating outlook is stable.

The rating on DSPL's transaction, a financing of a US$434 million Indonesian geothermal private power project on the island of Java, incorporates the following risks: o Premature depletion or mischaracterization of the geothermal resource; o A construction program that has only about three scheduled remaining months, which is located in a remote tropical region of Indonesia; and o Potential regulatory and structural changes to Indonesia's electric supply industry, due to anticipated restructuring and whole or partial privatization that could adversely affect the project's electricity sales contract.

However, the following strengths offset the risks at the triple-B' level: o Use of a simple and commercially proven power generation technology; o Two years of production history that more than adequately confirms the geothermal resource reserves needed to support the 165 MW power plant expansion; o Resource development and construction activities on schedule with engineering and procurement virtually complete and construction about 70% complete since starting in July 1995; o An unconditional completion guarantee, except for sovereign risk events, provided by Unocal Corp. (triple-B'-plus corporate credit rating) of the obligation of its subsidiary, Unocal Geothermal of Indonesia Ltd., to pay debt service on the notes until construction completion; o Unocal's 30 years of geothermal experience in the U.S., Philippines, and Indonesia, which give the company about 29% of the world market share of geothermal energy production; o Widespread government support, including a guarantee from Indonesia which was signed by the Ministry of Mines and Energy, concerning obligations of PT PLN Persero (PLN), the offtaker, and all necessary approvals of the state-owned industries' contracts with the project; o The project's strategic importance in alleviating Indonesia's electricity generation capacity shortage; and o The project's 42% equity capitalization that contributes to a minimum project debt service coverage ratio of 2.27 and an average coverage of 2.83.

DSPL on-lent the note proceeds to Dayabumi Salak Pratama Ltd. Dayabumi is using the proceeds of the offering to finance a portion of the cost of constructing a 3x55 MW (165 MW) power plant (Units 4, 5, and 6) located about 65 kilometers south- southeast of Jakarta, Indonesia.

Dayabumi was formed in 1996 as a special purpose limited liability company to build and operate a geothermal fueled power generation facility. Before 1996, Unocal Geothermal had entered into a joint operation contract with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina), Indonesia's state-owned oil company, to act as exclusive contractor and developer for the geothermal resource located in the Gunung Salak contract area.

The Gunung Salak area is the region on the island of Java in which the project is located. Unocal Geothermal and its partner, PT Nusamba Geothermal (Nusamba), will finance the resource development through US$168 million in equity contributions. Unocal Geothermal has a 50% interest in the Dayabumi joint venture and Nusamba, an Indonesian corporation, holds the remaining 50% interest.

Dayabumi will service the debt with revenues payable pursuant to an electricity sales contract, which provides Dayabumi with a build-operate-transfer agreement, with PLN and Pertamina, the state-owned electricity company.

The agreement provides for certain minimum electricity and geothermal payments from PLN as long as the plant maintains an 85% availability. Financial projections demonstrate that even under adverse conditions, adequate cash exists to service the debt obligations.

The project's sound economic fundamentals, strategic importance to its offtaker, its highly experienced sponsor, Unocal Corp.'s project completion guarantee, and Indonesian Government support allow Standard & Poor's to conclude that the project's bond rating likely will remain unchanged in the near term.

Improvements to the Indonesian sovereign triple-B' rating, combined with proven production history at the 330 MW level and improvement in the electricity offtaker's business position could result in upward rating movement, Standard & Poor's said.