RELEASE: Moody's changes Paiton Energy's outlook to stable from positive

(Hong Kong, October 08, 2008) -- Moody's Investors Service has changed to stable from positive its outlook for the B1 senior secured rating of Paiton Energy Funding B.V., the obligations of which are guaranteed by PT Paiton Energy Company (Paiton).

"The change in outlook reflects the inherent risks and uncertainties evident in Paiton's large expansion plan, which involves the building, ownership and operation of an 815MW coal-fired power project at an estimated project cost of USD1.450 billion," says Jennifer Wong, Moody's lead analyst for the company.

"Furthermore, the financing structure for the expansion is now being negotiated and the impact on existing lenders remains uncertain," says Wong.

Nevertheless, Moody's draws a certain level of comfort from the fact that the financing structure will be conducted without any material adverse impact on existing bondholders' interests as expansion-related amendments to the existing power purchase agreements and financing sructures are subject to current lenders' consent, including the bondholders.

"The B1 rating reflects Paiton's stable operational performance since it restructured its power purchase agreement in 2003, while it has also kept the availability factor of its plants above 90% over the past three years," says Wong. "Furthermore, payments from its off-taker, PLN (Ba3/stable) have so far been on time and in accordance with invoices."

The stable outlook reflects Moody's expectation that Paiton will continue to demonstrate a strong operating performance and generate steady and predictable cash flow. The stable outlook also incorporates Moody's expectation that the expansion will have a minimal adverse impact on its existing operational and financial profile.

Upward pressure on the rating is unlikely in the next 12 months, given the inherent risks associated with the company's large expansion plan.

Negative rating pressure could emerge if 1) the proposed financing structure for the expansion plan under negotiation is significantly changed and results in a materially adverse impact on Paiton's operational and financial profile, and which impairs the interests of current bondholders; and 2) the company's operational and financial performances deteriorate, such that its DSCR consistently falls below 1.2x.

P.T. Paiton Energy Company owns and operates two 615MW coal-fired power units in East Java, Indonesia. Paiton Energy Funding B.V. is a special purpose company created for the bond funding of the power plants.(end of release)