S&P may downgrade power project bonds

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)