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.