S&P downgrades ratings on Freeport, ALatief

JAKARTA (JP): International rating agency Standard & Poor's on Thursday downgraded ratings on Freeport McMoran Copper & Gold Inc. and PT ALatief Freeport Finance Co. BV., reflecting their exposure to Indonesia's intensifying fiscal and political risks.

The downgrading changed Freeport's corporate credit rating from B minus to triple C plus; its senior unsecured debt and shelf from triple C plus to triple C; subordinated shelf from triple C to triple C minus and preferred stock and preference shelf from triple C minus to double C.

Rating on ALatief's senior unsecured debt was also lowered from triple C plus to triple C.

"Most notably, the downgrading reflects past close ties between Freeport and the former regime of president Soeharto and the potential for retribution," Standard & Poor's said.

The downgrading also mirrors concern over the rising tide of populism and uncertainty over the parliamentary and presidential elections later this year.

"A new administration could seek increased wealth distribution from foreign corporations like Freeport operating in Indonesia," it said.

Intensifying demands and also support for increased provincial autonomy in Irian Jaya, where Freeport's primary asset is located, would also likely affect the company's operation.

Freeport operates a massive, low-cost copper and gold mine in Grasberg complex, Irian Jaya, with copper and gold reserves totaling 51.3 billion pounds and 64.4 million ounces respectively.

With copper and gold equity production in 1998 of 1.42 billion pounds and 2.2 million ounces respectively, Freeport is one of the largest producing copper and gold mines in the world.

"This is offset by Freeport's exposure to Indonesian political risk, volatile commodity prices and aggressive financial policies."

Standard & Poor's said opposition from the Indonesian government over Freeport's recent request to increase production from 300,000 tones of ore per day reflected the "increasingly difficult operating environment and adverse political sentiment in Indonesia". (rid)