S&P gives Barito Pacific BB'-plus rating

S&P gives Barito Pacific BB'-plus rating

JAKARTA (JP): Standard & Poor's said yesterday it assigned its
double-B'-plus corporate credit rating to PT Barito Pacific
Timber (BPT).

According to the rating agency, the outlook is stable,.

The rating reflects BPT's solid position in global hardwood
plywood markets supported by long-term, secure access to low cost
and abundant forest resources, and a moderate attitude to finance
asset growth, the agency's statement said.

The rating also reflects the risks associated with the planned
construction of a large-scale pulp mill, to be operational by the
end of 1999.

Currently solid finances will likely deteriorate, on a
consolidated basis, over the period 1997 to 1999 as the pulp mill
is constructed.

BPT is a significant entity in the Barito Pacific Group (the
group), a family-controlled group with diverse forestry,
petrochemical, manufacturing, and property interests, based in
Indonesia.

The group also has significant minority investments in several
large Indonesian groups. These groups do not have any cross-
shareholdings with BPT, nor does BPT or the group guarantee the
obligations of these companies.

Secure access to fast-growth forest resources ensures BPT can
sustain its position as a low cost plywood producer over the long
term. BPT is Indonesia's largest hardwood plywood manufacturer,
exporting about 90 percent of its production, primarily to the
Asian region.

While globally, plywood consumption growth is exhibiting
maturity, and some vulnerability to substitute panels,
Indonesia's low-cost position has resulted in its industry
continuing to grow at the expense of higher cost producers.

Plywood prices can be volatile, reacting to the purchasing
behavior of the largest importer countries, Japan and China.

Indonesia's single desk export marketing association, Apkindo,
has demonstrated some influence over pricing dynamics, leading to
price stability relative to other globally traded forest
products.

Since listing as a public company in 1993, BPT has maintained
significant liquidity and only modest debt levels. The IPO
provided the funds to permit the company to further develop its
forestry concessions, to reduce debt, and to provide the equity
for the pulp mill.

Over the next two to three years, while the pulp mill is being
constructed, BPT's finances will likely deteriorate, though
remain satisfactory for the rating.

BPT has no experience in pulp manufacture and marketing.
However, BPT is mitigating the risks of entering a new forestry
sector through securing fiber supply from its own plantation
acacia forest, entering a fixed price turnkey construction
contract with an experienced contractor, bringing in partners
experienced in pulp mill management and pulp marketing, funding
70 percent of the project with long term funds under which there
is limited recourse to the shareholders, and securing markets for
all of the mill's pulp through take-or- pay contracts with two
customers.

Nevertheless, the construction and commissioning risks for the
pulp mill are significant.

Standard & Poor's expects the company will leverage its
balance sheet over the long term up to 50 percent, consolidating
the pulp mill. Leverage at this level, and likely cash flow and
interest cover protection, will likely limit the rating to the
present category. Yet the rating provides BPT with the latitude
to pursue its strategic growth ambitions leveraging off the
forest resources, Standard & Poor's said.