PRESS RELEASE: S&P raises PGN FC rating to 'B+'

SINGAPORE (Standard & Poor's) Jan. 30, 2004--Standard & Poor's Ratings Services today raised its foreign currency rating on Indonesian government-owned gas utility PT Perusahaan Gas Negara (Persero) Tbk. (PGN) to 'B+' from 'B'. The outlook on the rating is stable. At the same time, the rating on the US$150 million notes (due 2013) issued by PGN Euro Finance 2003 Ltd., and guaranteed by PGN, was raised to 'B+' from 'B'.

The rating upgrade reflects PGN's successful privatization through an IPO in December 2003. The reduction in government ownership of the company to 61% from 100% should provide the company a modest degree of insulation from the financial risk of its parent, the Republic of Indonesia (FC: B/Stable/B; LC: B+/Stable/B). Additionally, PGN's public listing should result in stricter corporate governance and increased financial transparency. PGN is entitled to about RM1.2 trillion (US$144 million) of the IPO proceeds, which the company will utilize for its capital expenditure program. PGN is involved in the distribution, transmission, wholesale, and retail of gas.

"Following the privatization, Standard & Poor's expects the government to be reasonably hands-off in the company's financial matters. However, should this policy change in the future, the rating could be revised to reflect a closer parent-subsidiary relationship," said Standard & Poor's credit analyst Erly Witoyo in the Asia-Pacific Corporate and Infrastructure Ratings Group. "As evident in the past, the government should continue to allow PGN to operate on a commercial basis, with minimal government interference," he added.

Nevertheless, the ratings are weakened by uncertainty in the regulatory environment of the Indonesian gas market, a concentration in customer base in the industrial sector, and a mismatch in the length of its gas supply and purchase contracts. Supporting the ratings is PGN's strong market position in gas distribution and transmission, its long-term gas transmission contract, and solid cash flow coverage, with funds from operations expected to be more than 30% of debt in 2003 and 2004.

The stable outlook reflects the expectation that PGN will maintain its dominant market position amid industry liberalization and that the company's aggressive capital expenditure program will be achieved on time and on budget. It also assumes that the network tariff determination does not hinder the company's revenue-generating abilities.

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Credit Ratings Actions. (End of release)