S&P Asgns BBB Rtg to 1st Silicon US$250M Secured Ntes.

Business Editors

HONG KONG--(BUSINESS WIRE)--Standard & Poor's

June 19, 2001--Standard & Poor's today assigned its triple-'B' rating to 1st Silicon (Labuan) Inc.'s US$250 million senior secured notes.

This transaction is a debt financing whereby rated notes are issued by 1st Silicon (Labuan) Inc. to fund a secured loan which it will advance to the ultimate borrower, 1st Silicon (Malaysia) Sdn Bhd. The terms and conditions of the loan in relation to the payment of interest and the prepayment of principal correspond to those of the notes. However, this transaction includes a six-month tail period, as the final legal maturity of the notes is June 2008, while the final legal maturity of the loan is November 2007. The issuer has the option of issuing further pari-passu notes without consent from noteholders, but subject to rating agency affirmation.

The rating reflects the following:

-- The first fixed and floating charges over the assets of the borrower in
support of its obligations under the loan agreement;

-- The guarantee of the borrower's obligations under the loan agreement by the
Sarawak Economic Development Corp. (SEDC) and the underlying note collateral.
The obligations of SEDC under this transaction also benefit from a letter of
support from the State Government of Sarawak, which, although not a guarantee,
is a legally binding obligation on the State, and therefore implies strong
support for the guarantor and its obligations;

-- The guarantor is legally obligated to make timely payments under the loan
agreement, the note security trustee has unfettered rights to demand payments
against the guarantor, and the noteholders have access to reserve funds held in
the name of the sub-trustee equal to three-months of interest and expenses,
providing additional comfort for the deal;

-- Structural features such as segregated payment accounts held in the name of
the sub-trustee to hold funds received from the borrower or guarantor; and

-- Legal and tax opinions satisfactory to Standard & Poor's covering the full
enforceability of the security on the loan.

Because the rating on this transaction is predicated on the credit quality of the guarantor, SEDC, any changes to the credit quality of SEDC will be reflected in the ratings on the notes. The rating on the notes is dependent on the long-term foreign currency assessment of SEDC, third parties such as bank account providers, and the rating on the Federation of Malaysia.

The issuer, 1st Silicon, is a limited-liability company incorporated in Labuan for the sole purpose of making a secured loan to the borrower, and issuing the rated notes. Labuan is a Malaysian offshore financial center, which offers special tax incentives to offshore companies conducting offshore business activities in or from Labuan. The issuer loaned all of the proceeds from the note issue to its parent, 1st Silicon (Malaysia) Sdn Bhd. ("borrower"). The borrower is a limited-liability operating company incorporated in the State of Sarawak and is 48%-owned by SEDC, 48%-owned by Sarawak Enterprise Corp. Bhd. (itself majority-owned by the State of Sarawak) and 4%-owned by M. & W. Zander, the foundry construction company. Proceeds from the note issue will be used by the borrower to repay certain existing indebtedness and for general corporate purposes.

The borrower is a dedicated silicon wafer-processing foundry. The borrower does not design or manufacture its own products but instead focuses on producing processed wafers for manufacturers of electronic products. The company is currently producing processed wafers mainly for the communications and consumer electronic sectors. 1st Silicon (Malaysia) is controlled by the state government and board members include the state attorney general, and the former state financial secretary. The Malaysian federal government has also guaranteed US$300 million of the borrower's other term debt.

The SEDC is a wholly owned state enterprise. Standard & Poor's believes that the SEDC enjoys a closer relationship with its state government owner and the federal government than some other state-owned economic development corporations -- most notably Johor Corp., which is currently being forced to reschedule its debt. Furthermore, the credit quality of the parent state of Sarawak is strong.

A full analysis of this transaction will soon be available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. ---CreditWire

Copyright 2001, Standard & Poor's Ratings Services