S&P may downgrade power project bonds

JAKARTA (JP): The U.S.-based credit rating agency Standard & Poor's (S&P) announced yesterday that it was considering downgrading several bonds used to finance Indonesian power projects.

The rating agency said in a statement that it placed the triple-B minus (BBB-) ratings of two bonds and a loan used to finance power projects on its Credit Watch with negative implications.

S&P noted a possible waning of government support for the state-owned electricity company PT Perusahaan Listrik Negara (PLN), and for Indonesia's independent power producer (IPP) program as a whole.

The rating agency's statement said that the debt instruments affected would include senior secured bonds at Paiton Energy Funding B.V. due in 2014, a bank loan rating on CE Indonesia Funding Corp., and US$150 million at 9.12 percent in senior secured notes at DSPL Finance Co. B.V. due in 2010 which was guaranteed by PT Dayabumi Salak Pratama.

S&P said that the Credit Watch placement reflected a potential shift in government support for PLN and the Indonesian IPP program.

The rating agency said that its original assessment took into consideration the government's overall support of the state-owned electricity firm PLN, as well as specific letters of support issued by the Ministry of Finance and guarantees from the Ministry of Mines and Energy of individual power offtake contracts.

However, a team from S&P, which made a recent visit to Jakarta, found that the Ministry of Finance "was not prepared to affirm the support arrangements for IPP in particular nor assert support for the state-electricity firm PT PLN in general".

The rating agency said that it was concerned that the devaluation of the rupiah would hurt PLN because the state-owned electricity company was paid in rupiah by its customers for electricity but had to buy much of its electricity in foreign currency.

S&P said that the potential shift in government support for these projects increased the uncertainty of PLN's ability to honor its contractual obligations to the project's electricity sales agreements.

The ratings agency said other risks include the possibility that electricity sales agreements would be renegotiated, which could lower profit margins and the ability to repay obligations.

S&P said that it would not downgrade the ratings if Indonesian ministries reaffirmed support for the original project offtake contracts.

The rating agency also said that it was concerned whether PLN and the government would allow the 27 government-approved IPP projects to continue as scheduled.

"Should all projects with executed electricity agreements proceed, PLN's already weakened business position could deteriorate further," the rating agency said.

Given with no renegotiation discussions for the projects, S&P would be prepared to remove the rating from its Credit Watch if the relevant ministries reaffirm the support for the projects offtake contracts. (aly)