S&P affirms double-C rating on Paiton

S&P affirms double-C rating on Paiton

JAKARTA (Dow Jones): Standard & Poor's Corp. on Thursday
affirmed its double-C rating on Paiton Energy Funding B.V.'s
US$180 million senior secured bonds which are guaranteed by PT
Paiton Energy Co.

The outlook remains negative, the ratings agency said.

The junk rating on the bonds reflects the ongoing difficulties
the company faces, S&P added.

PT Paiton Energy is currently operating under an interim
agreement with state-owned energy producer, PT Perusahaan Listrik
Negara, or PLN, whereby PLN purchases power from PT Paiton at a
much lower price than stipulated in the original agreement
between the two parties.

As a result, Paiton hasn't been able to make principal
payments on its bank loans since November 1999. Lenders have
agreed to defer principal payments until Dec. 31, 2000, when the
company expects to conclude negotiations with creditors on a
revised agreement.

Principal payments on the senior secured bonds aren't
scheduled to begin until May 2008. Operating costs and interest
payments on debt are being met by a combination of revenues from
Paiton's power project and contributions from shareholders, S&P
said.

Since the interim agreement and the negotiations with PLN are
confidential, it is impossible to estimate project revenues, S&P
added.

Furthermore, S&P said it doesn't expect shareholders will
continue to provide funds for bond interest payments much longer.

On the positive side, electricity demand on the main national
grid is on the rise, which has led to an increase in Paiton's
supply to PLN since the interim agreement was concluded.

Even taking this and the possibility of a settlement within
the next six months into account, a combination of PLN's weak
financial position and the high debt service obligations of
Paiton's project make a default on the bonds a possibility.