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Rating Action:

Moody's assigns provisional B2 rating to Uniflora Prima

Global Credit Research - 29 Mar 2011

Singapore, March 29, 2011 -- Moody's Investors Service has today assigned a provisional B2 corporate family rating to P.T. Uniflora Prima (Uniflora). At the same time, a provisional B2 senior secured bond rating has been assigned to the proposed senior secured notes issued by Uniflora Prima International Pte. Ltd., an entity wholly-owned and guaranteed by Uniflora.

The outlook on both ratings is stable.

This is the first time Moody's has assigned ratings to Uniflora or Uniflora Prima International Pte. Ltd.. The provisional status of the ratings will be removed upon completion of the bond issuance and the acquisition of the stake in P.T. Davomas Abadi Tbk ("Davomas"; Caa3).

Uniflora plans to acquire a 51.9% stake in Davomas, with proceeds from a mandatory convertible bond of USD77 million, which will be automatically converted into shares of Uniflora upon issuance of the proposed senior secured notes.

The proceeds from the bond issue will be used to fund (1) expansion at Uniflora; (2) a mandatory tender offer for the rest of Davomas' shares, with any unutilized amount used for the repayment of a USD33 million subordinated shareholder loan provided to Davomas for working capital purposes, pursuant to its debt restructuring exercise in 2009; (3) the full redemption of Davomas' senior secured notes due 2011 and 2014; and (4) working capital and general corporate purposes.

RATINGS RATIONALE

Uniflora's provisional B2 rating reflects its position as the leading producer of cocoa butter and cocoa powder in Indonesia after acquiring Davomas, albeit its small scale.

"After the acquisition, Uniflora will be the largest cocoa butter and cocoa powder producer in Indonesia," says Alan Greene, a Moody's Vice President and Senior Credit Officer.

The rating also reflects Uniflora's competitive cost structure given its lower labor and transportation costs by international standards, and that it sources its feedstock directly from farmers, bypassing the middleman.

The Indonesian government's introduction of an export tax of up to 15% on cocoa beans in April 2010, should benefit Uniflora as it becomes more cost-efficient for foreign cocoa processors to purchase intermediate cocoa products, as compared to raw cocoa beans, which are now subject to this export tax.

Uniflora's key challenge includes its exposure to commodity cycles, leading to earnings and cash flow volatility, although this can be partially mitigated by its strategy to match its sales orders with cocoa bean purchases to lock-in profits. Moody's is also concerned with the transparency and corporate governance of Uniflora given its private company status.

"The rating also recognizes the company's limited track record, high degree of customer concentration risk, and the lack of diversification given it operates on two sites, sources its feedstock entirely from Indonesia, and is involved only in the cocoa beans processing business," says Greene, who is also Moody's Lead Analyst for Uniflora.

Uniflora began the production of cocoa butter and cocoa powder only in June 2010 and operated at 82% capacity over six months of operation in FY2010.

The rating also takes into consideration of Davomas' credit profile, which is reflected in its Caa3 rating. Davomas is currently recovering from the economic downturn, after a seven-month suspension of its operations from May to December 2009 in an effort to conserve cash due to significant losses from the stocking up of high-cost feedstock, customer cancellations and steep discounts on its products amidst weak economic conditions.

In addition to the guarantee from Uniflora, Davomas will also provide a partial guarantee to the proposed senior secured notes after (1) the redemption of Davomas' existing senior secured notes due 2011 and 2014; and (2) the completion of the purchase of the 51.9% stake in Davomas by Uniflora.

The amount of guarantee provided by Davomas will be limited to the amount of intercompany loan provided to fund (1) the redemption of Davomas' existing 2011 and 2014 senior secured notes, together with any fees or expenses incurred; and (2) the repayment of all or a portion of the USD33 million shareholder loan provided to Davomas from the SPV, with funds remaining after the mandatory share tender offer. The amount of guarantee from Davomas will decrease as the intercompany loan is repaid.

The stable outlook reflects the expectation that cocoa bean prices will stabilize over the next one to two years and Uniflora will be able to increase its production and expand its operations as planned.

Upward rating pressure could develop if Uniflora (1) establishes a longer track record in the cocoa grinding industry, strengthens its corporate governance and adheres to internal operational guidelines; (2) expands and diversifies its customer base; and (3) maintains it's financial and liquidity profiles while financial flexibility improves with sufficient headroom under its financial covenants.

Downward pressure could develop if Uniflora's industry fundamentals deteriorated, resulting in protracted weakness in profitability, such that EBITDA margin remains below 20%, or if Uniflora increases its debt leverage, which could arise from new acquisitions, substantial capex and/or shareholder returns. Such pressure may be evidenced by EBITA/Interest below 2.5x and debt/EBITDA above 5.0-6.0x.

The principal methodology used in this rating was Global Food - Protein and Agriculture Industry published in September 2009.

Uniflora is a private company and one of Indonesia's largest producers of cocoa butter and cocoa powder. The company's production facilities are located in Serang, Banten Province, Indonesia, and include six production lines with a total production capacity of 120,160 tonnes per annum. After acquiring Davomas, the group will have an aggregate production capacity of 261,280 tonnes per annum.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Singapore
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's assigns provisional B2 rating to Uniflora Prima
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