Release: Standard & Poor's: Rating on Paiton Energy Funding B.V.'s US$180m bond raised to 'B'

(Aug. 14, 2006) -- Standard & Poor's Ratings Services said today it raised its rating on Paiton Energy Funding B.V.'s (PEF) US$180 million senior secured bond issue to 'B' from 'B-'. The bond is guaranteed by Indonesia's PT Paiton Energy (Paiton), which owns two 615 MW coal-fired power plants in East Java, Indonesia. The outlook is stable.

The rating action is in tandem with the recent rating upgrade of the sovereign credit ratings on the Republic of Indonesia (foreign currency BB-/Stable/B; local currency BB+/Stable/B). The upgrade on Indonesia in turn reflected its improving fiscal and external performance, resulting in declining debt burdens.

"Paiton faces high counterparty risk from its sole off-taker, state-owned utility PT PLN (Persero), which has a weak credit profile and relies on government subsidies to meet its financial obligations. Therefore, the sovereign's stronger financial profile should strengthen its ability to support PLN's obligations, leading to a corresponding improvement in Paiton's credit profile," said Standard & Poor's credit analyst Anshukant Taneja.

The rating on the PEF notes also reflects the relatively uncertain legal and operating conditions in Indonesia. Government policies on subsidies and exchange-rate management could potentially affect Paiton adversely. These weaknesses are, however, partially mitigated by Paiton's contractual agreement with PLN, its low cost of power generation, and favorable demand prospects for power in Indonesia.

"The stable outlook factors in a continued stable operating performance by the company and timely payments from PLN. A prominent improvement in the financial profile of PLN can potentially have a positive impact on the outlook or rating on Paiton," said Mr. Taneja. (end of release)