FertiNitro Senior Secured Bonds Downgraded to `BB+' By Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--June 11, 1999--

Fertilizantes Nitrogenados de Venezuela, FertiNitro, C.E.C. $250 million of 8.29% senior secured bonds due 2020 are downgraded to `BB+` from `BBB' by Fitch IBCA.

These notes rank pari-passu with $450 million of committed bank debt. Also in place are $50 million cost overrun facility and a $60 million debt service facility. Fitch IBCA's foreign currency rating on Venezuela is `BB-.'

The downgrade is due primarily to the significant deterioration in the pricing environment for nitrogen fertilizers in the past year. The price declines have been caused by the glut of ammonia and urea fertilizers available in the market. The largest contributor to this situation has been the significant amount of output being sold by Black Sea producers. Other contributing factors to the weak pricing environment include the ban of urea imports by China since April 1997 and the economic slowdown in Asia. With the projected late-2000 start up of this project and the Profertil S.A. project in Argentina in mid-2000, Fitch IBCA does not expect significant price improvement in the next few years. Fitch IBCA views these events and new low-cost plants as lowering the traditional view of floor prices for nitrogen fertilizers.

If current FOB Caribbean prices (now $85 for both ammonia and urea) would be the realized prices at the project start-up, debt service coverage ratios would be below 1.0 times (x). In order to achieve coverages in excess of 1.0x, realized FOB Caribbean prices for both ammonia and urea would need to be in excess of $97 per metric tonne. The project has $60 million debt service reserve facility which is available to cover any shortfalls. Given that prices are be expected to turn upward in 2003 after this project is absorbed, and assuming that no other large-scale projects are underway at that time, Fitch IBCA expects that prices would rise to levels that would generate sufficient cash flows to repay any draws in a short period of time.

While Fitch IBCA still believes the FertiNitro plant will have one of the lowest cash production costs in the world, these depressed prices could lead to financial strains for the project upon completion. The possibility of permanent capacity shutdown in the world would be expected to ease the current pricing situation, however, the continued volatility in prices remains a concern.

FertiNitro is constructing an ammonia and urea complex at the Jose industrial complex near Puerto La Cruz, Venezuela. Designed annual capacity is 1.3 million metric tonnes of ammonia (400,000 tonnes to be sold externally; remainder consumed by urea plant) and 1.49 million tonnes of urea. Equity sponsors for the transaction include affiliates of Koch Industries Inc. (35%), Petroquimica de Venezuela, S.A. (Pequiven; 35%), Snamprogetti S.p.A. (20%), and Empresas Polar Uno C.A. (10%). The sponsors are contributing equity such as to maintain a 70/30 debt/equity ratio up to a maximum of $475 million, of which $308 million is the base commitment and $175 million is a contingency reserve for cost overruns. All payments to the sponsors will be run through the restricted payments test, which precludes equity distributions unless the debt service coverage ratio exceeds 1.25 times (x).

Construction is proceeding with commissioning scheduled for October 2000. The base EPC contract price with Snamprogetti is $768 million. Current cost estimates are $84 million higher than the original $1.0 billion price due primarily to Venezuelan inflation, which is expected to result in local costs being $68 million higher than projected. At April 30, 1999, the project was 47.6% complete, which is on plan with the construction schedule that was revised during the month to shift some work to later months, while retaining the late-2000 completion target. Construction has proceeded slower than initially anticipated, while engineering and procurement have been quicker than expected. There have been two work stoppages, due mostly to worker's demanding better working conditions, which centered on work site amenities and payment issues.

An important component of the transaction is the methane gas supply agreement from Cevegas, a wholly owned subsidiary of PDVSA, which prices the gas to the project at $0.50/mcf, as compared to a current Gulf Coast spot price of $2.37. The gas that is supplied to FertiNitro is considered `associated' gas that is produced along with the desired oil. Since PDVSA must now spend funds to re-inject the gas into the ground, as local law does not permit it to be flared, the project will help to monetize this surplus fuel.

Koch and Pequiven will be severally obligated undertake-if- tendered 20-year contracts to purchase 100% of product output. Sales proceeds will be deposited into an offshore account, denominated and paid in U.S. dollars. Koch has exclusive right to market products for delivery in North America, with Pequiven having delivery rights for South American, Central America and Caribbean markets. Contracts allow for the marketing of products in the other's territory, if mutually agreed upon. Koch is the second largest private company in the U.S. and is headquartered in Wichita, Kan. The company owns and operates a diverse ammonia pipeline system in the Midwest and this project will enable the company to expand its operations globally. Pequiven currently controls the petrochemical investments made by PDVSA.