Release: Fitch revises Indika?s outlook to positive; Affirms IDRs at ?B?

Fitch Ratings-Jakarta/Singapore-08 September 2008: Fitch Ratings has today revised the Outlooks on Indonesia-based PT Indika Energy Tbk (Indika)?s Long-term foreign and local currency Issuer Default Ratings (IDRs) to Positive from Stable, and affirmed them both at ?B?. At the same time, Fitch has also affirmed the senior unsecured rating of 'B' and recovery rating of 'RR4' on the USD250m notes due in 2012 issued by Indo Integrated Energy B.V. and guaranteed by Indika and its 100%-owned subsidiary, PT Indika Inti Corpindo.

The Outlook revision reflects Fitch?s expectation that dividend flows from Indika?s 46% investment in Kideco Jaya Agung (Kideco) will remain steady and high. Due to the current high coal prices, cash inflow from Kideco?s dividends will increase to USD41.4m in 2008 from USD22.1m in 2007; this will likely increase further as the company raises its coal production by expanding its mining capacity from the existing 24 million tonne per annum to reach 30mt per annum by end of 2009. Indika?s Positive Outlook also reflects the increasing domestic demand in oil and gas sectors, which is likely to result in more engineering, procurement and construction (EPC) businesses for Tripatra, Indika's fully-owned subsidiary, leading to improved financial performance.

Indika?s ratings, however, remain constrained by its status as a holding company that derives the majority of its cash flows from dividends received from Kideco and Tripatra, rather than from its own operations. Furthermore, notwithstanding Tripatra?s improved performance primarily driven by the rising crude oil price, it is still exposed to volatility in EPC business risk and investment risk with high competition in the market. Any inability to win new contracts could adversely affect its cash flow. As of end 2007, Tripatra had an outstanding orderbook of USD310.2m and it managed to secure additional contracts amounting USD67.3m in H108.

With the fresh infusion of funds through an IPO totalling around USD260m in June 2008, Indika booked a net cash position of IDR676.7bn as at 30 June 2008. Fitch also notes that the company still retains a portion of the USD250m proceeds from notes issued in May 2007 in cash totaling USD103.5m (IDR949bn) as at 30 June 2008. With no debt maturing up until 2012 when the US dollar notes fall due, liquidity is not an immediate concern.

Proceeds from the IPO are expected to be used to facilitate expansion and acquisition plans mainly in the energy resources and energy infrastructure businesses, which are complementary to Indika?s existing businesses. As of end H108, a conditional sales and purchase agreement to acquire coal concessions in Kalimantan had been signed and IDR184.3bn (USD20m) had been paid up front. Given that specific targets for the remaining new investment and acquisition plans have not been finalised, there is still uncertainty over the size and quality of the company's incremental future cash flows from these assets.

A positive rating action may be taken upon the successful acquisition and implementation of the new investment plans, and if Tripatra continues to demonstrate the ability to secure new job orders. Conversely, an outlook revision may be warranted if dividend flows from Kideco is reduced, new investment projects produce weak returns, and/or Tripatra fails to obtain new contracts.

Established in 2002, Indika is a privately-owned investment holding company with two major investment assets - a 46% stake in Kideco and a 100% stake in Tripatra. Kideco is Indonesia's fifth largest coal producer and operates under a 30-year Coal Contract of Work (CCOW). Tripatra is a leading EPC and O&M (Operations and Maintenance) service provider in Indonesia with a focus on energy and infrastructure projects. In the twelve months ended in June 2008, Indika posted revenue of IDR2,627bn and net income of IDR598.7bn. (end of release)