S&P cuts Indonesian IPP projects to 'BB'

S&P cuts Indonesian IPP projects to 'BB'

NEW YORK (Reuters): Standard & Poor's Saturday lowered its
ratings on Indonesian independent power producer (IPP) project
bonds and bank loans to BB from BB-plus.

This action affects the following ratings:

-- Paiton Energy Funding B.V.'s US$180 million senior secured
bonds due 2014 (guaranteed by PT Paiton Energy Co.);

-- CE Indonesia Funding Corp.'s US$400 million bank loan;

-- DSPL Finance Co. B.V.'s US$150 million 9.12% senior secured
notes due 2010 (guaranteed by Dayabumi Salak Pratama Ltd.); and

-- MNL Indonesia Funding Corp.'s US$250 million bank loan (Wyang
Windu Geothermal Project).

The projects' debt ratings remain on CreditWatch with negative
implications, where they were placed Dec. 1, 1997.

The downgrades are a direct result of Standard & Poor's
downgrade of its rating on Indonesia's long-term foreign currency
to double-'B' from double-'B'-plus. The rating is on CreditWatch
with negative implications.

The downgrades reflect increased risk of inconvertibility of
the Rupiah to U.S. dollars and transferability of U.S. dollars
out of Indonesia, and a continued weakening of the projects'
offtaker, the state-owned electricity company, PT Perusahaan
Listrik Negara (Persero) (PLN).

The IPP power projects have electricity tariffs that are
either denominated in dollars or are payable in Rupiah, but
indexed to dollars. PLN's call on the hard currency needed to
honor IPP obligations will increase with new IPPs coming online
in the next few years.

Hence, as Indonesia's foreign currency reserves become
scarcer, PLN will have greater difficulty accessing the U.S.
dollars needed to honor its electricity sales contracts (ESCs).

Standard & Poor's placed the project debt ratings on
CreditWatch on Dec. 1, 1997 due to a potential shift in
government support for ESCs executed by PLN and for the
Indonesian IPP program. Recent conversations that Standard &
Poor's has had with the Indonesian Ministry of Finance (MoF)
indicate that the MoF is still supporting the projects.

The MoF stated that it will continue to ensure that PLN honors
its ESC payment obligations and that, if necessary, the MoF will
pay PLN so that it can make the payments.

Standard & Poor's emphasizes that the volatile political and
economic Indonesian environment could change, adversely affecting
the IPP program. Standard & Poor's will continue to assess the
government support of the IPP program.

Even those projects that have support letters from the MoF and
are either in operation or, have reached financial closure and
have begun construction could be at risk.

Should sufficient evidence exist that the projects will no
longer be able to rely upon government support, additional
project rating downgrades may result.