Widest trading IG bond in Asia with no immediate risk of downgrade. This istrue for both, the 2030s & 2037s as can be seen in Figures 1 & 2. Note thatthese bond are amortizing, their average life being 10 years and 17 years, sowe effectively think of them as 2027s & 2034s respectively.    Plus, these bonds are secured with hard assets. There are very few bonds inAsia with proper collateral and Paiton is perhaps the only IG one. On top, it hasestablished international companies as shareholders including Mitsui, NebrasPower & JERA.    Can it trade flat to PLN? We acknowledge that theoretically Paiton shouldtrade at a spread over PLN with the latter being its sole offtaker. Also, we areaware that a PLN rating downgrade will likely lead to an automatic downgradefor Paiton, but this linkage does not hold for an upgrade. However, weunderstand that Paiton was one of the rare companies to not default on thedollar debt even during the Asian financial crisis as shareholders injectedmoney. This was the case even though PLN restructured its PPA. Given this,and the fact that bonds are secured, we will not be surprised to see Paitonclose the gap further with PLN and may be even trade flat to it eventually.    We are reluctant to compare Paiton to EM names as almost everything inLatam & CEEMEA appears optically wide, albeit for a reason in our view.    We initiate on the Paiton 2037s (106.5 offer, 5.1% yield to average life,G+260bp as we write) with Buy and 2030s with Hold (103 offer, 4.2% yield toaverage life, G+200bp). The 2037s are comparatively cheaper for us offering60bp spread pick up for seven years additional life. We note that some ofspread curves in Asia at the very long end are actually inverted on account oflack of 20-30 year supply here. In addition, the 2037s offer a 50bp pick up overPLN 2047s (Sell) vs. 30bp for the 2030s over PLN 2027s (Hold). We use PLN2047s as comp at the long end as their 2037s & 2042s are not liquid and/orhave a high dollar price. Investors can consider switching out of PLN 2047sinto Paiton 2037s for the spread pick up and 14 years shorter average life. Wesee fair value for the 2037s at about G+225-230bp, implying 30-35bp possibleupside.    Key downside risks are high leverage, old age of one of the two plants, largedividend payments, dependence on a single customer and potential lack oftransparency being a private company. Upside risks include the featuresdiscussed above – secured nature of bonds, strong shareholders, etc.

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