S&P gives 'B+' to APP Finance's $300m notes

JAKARTA (JP): International rating agency Standard and Poor's has assigned a 'B+' long-term rating to APP Finance Mauritius Ltd.'s US$300 million liquid yield option notes due in 2012.

The rating outlook was stable, the rating agency said in a statement yesterday.

The $300 million notes were irrevocably and unconditionally guaranteed on an unsecured and unsubordinated basis by the parent company, Asia Pulp and Paper (APP), a flagship company under the Indonesia-based Sinar Mas Group.

"The funds from this issue will help finance planned expansions, principally in China and Malaysia," Standard and Poor's said.

As the new projects would not generate free cash flow for several years, financing commitments would be serviced from APP's stand-alone operations as the export agent for the group, with interest earned on surplus funds and management fees.

Standard and Poor's said it had also given a 'B+' corporate credit rating to APP, with a stable outlook.

"APP's rating reflects its stand-alone credit profile, the structural subordination of the company to its leveraged operating subsidiaries and APP's position as a flagship company in the diversified Sinar Mas Group," it said.

APP, a Singapore-based forest product group, is 86.2 percent owned by APP Global Ltd., a company controlled by the Sinar Mas Group.

APP has integrated operations of forestry management, pulp manufacture, fine paper and industrial paper manufacture and paper distribution.

Its subsidiaries include PT Indah Kiat and Paper, PT Pabrik Kertas Tjiwi Kimia, PT Lontar Papyrus Pulp and Paper Industry and PT Pindo Deli Pulp and Paper Mills.

Standard and Poor's said the APP group's operating cash flow would continue to be positive, but its internally-generated funds would unlikely be sufficient to meet its substantial and ongoing capital commitments.

"Financial measures have the potential to improve in the longer term, with planned equity issues and some asset restructuring; however, ratings will continue to be constrained by the group's ambitious growth plans and aggressive financing," it said.

While well established on several large-scale sites in Indonesia, the APP group more recently has expanded its operations to India and China and is committed to a large pulp mill in Malaysia. (rid)