Tokyo, July 05, 2011 -- Substitute senior unsecured for senior secured in second paragraph,
second sentence, "The ratings of Tokyo Gas were also downgraded
by one notch (to Aa2 senior unsecured from Aa1). "
Revised release follows.
Moody's Japan K.K. has downgraded the ratings of nine
Japanese utilities and has also kept their long-term ratings on
review for possible further downgrade.
Ratings downgraded by one notch include those of non-nuclear-generating
utilities Electric Power Development or J-Power (to Aa3 senior
unsecured and Issuer Rating from Aa2); and Okinawa Electric (to Aa3
senior secured and Issuer Rating from Aa2). The ratings of Tokyo
Gas were also downgraded by one notch (to Aa2 senior unsecured from Aa1).
Ratings downgraded by two notches include those of nuclear-generating
utilities Chubu Electric (to A1 senior secured and Issuer Rating from
Aa2); Chugoku Electric (to A1 senior secured and Issuer Rating from
Aa2); Hokkaido Electric (to A1 senior secured from Aa2); Hokuriku
Electric (to A1 senior secured from Aa2); Kansai Electric (to A1
senior secured and Issuer Rating from Aa2); and Kyushu Electric (to
A1 senior secured from Aa2).
The rating of Osaka Gas (Aa2 senior unsecured) is unchanged, but
remains on review for possible downgrade.
RATING RATIONALE
The rating actions reflect our expectation of a less supportive Japanese
government regulatory framework for all Japanese utilities following the
Fukushima Daiichi Nuclear Power Station disaster due to the March 11 earthquake.
In Moody's opinion, the regulatory environment now exhibits
more uncertainty and less predictability than previously anticipated.
The two-notch downgrades of those electric utilities with nuclear-generation
capabilities considers the additional and more immediate risks facing
these companies following the events at Fukushima Daiichi, including
their significantly higher expenses for LNG and other fossil fuels.
It also reflects the resulting economic, financial, and political
conditions that may make it more difficult for these companies to continue
recovering their higher costs on a timely basis.
The crisis at Fukushima Daiichi has prompted a profound reassessment of
the role of nuclear power in Japan, with the risk that other nuclear
plants will remain offline for an extended period due to public concern
over safety at such facilities.
At the same time, J-Power, Okinawa Electric,
Osaka Gas, and Tokyo Gas are insulated to a large degree from these
nuclear-specific developments. However, Moody's
notes that J-Power has temporarily halted construction of its first
nuclear power plant in Ohma, which was expected to be completed
in 2014, and could be negatively affected by adverse nuclear developments
in the future.
The relative ranking of the ratings also considers that the gas companies
have lower business risk and better financial metrics and liquidity relative
to the electric utilities. Tokyo Gas' financial metrics and
those of Osaka Gas have moved into closer alignment so their ratings are
now the same. The rating actions also reflect a degree of risk
differentiation among the electrics in favor of the two with the least
nuclear exposure. As further described below, there are multiple
conduits through which further stress may crystallize at these entities.
In May, at the request of the Prime Minister, Chubu Electric
ceased all electric production at its Hamaoka nuclear power plant due
to concerns about large scale earthquake and tsunami. .
Moreover, possible delays in the restart of nuclear plants currently
idled for maintenance could lead to power shortages at other utilities,
including Kansai Electric and Kyushu Electric, and which have the
highest level of reliance on nuclear power among the Japanese utilities.
Moody's believes that the business risk profile of all Japanese
utilities with nuclear generation capabilities has increased considerably
over the last several months.
In addition, as part of a proposed support plan for compensation
payments related to the Fukushima Daiichi accident, all Japanese
utilities that own and operate nuclear plants will be required to make
contributions to a newly created organization that would be charged with
paying compensation claims.
The support plan was approved by the Japanese Cabinet in mid-June
and then sent to the Diet for consideration. The plan establishes
a framework of mutual responsibility for the operation of all of Japan's
nuclear power facilities, with the required contributions adding
to the cost and rate pressures on all utilities with nuclear-generation
capabilities. Moreover, the magnitude and timing of these
contributions remain uncertain and could be material.
In addition to the costs associated with the support plan and a likely
shift away from nuclear power in the country, utilities are incurring
substantial costs for the purchases of coal and LNG to prepare for an
increased reliance on thermal power plants. These fuel purchases
will add to rate pressure and increase energy costs for residential,
commercial, and industrial customers throughout Japan at a time
when economic conditions are challenging.
The ratings of all of these utilities remain on review for possible further
downgrade. The continuing review considers the uncertainty associated
with the Japanese government's proposed Fukushima Daiichi compensation
framework. The plan is expected to be considered by the Diet over
the next two to three months, although key details have yet to be
determined.
There are also uncertainties associated with the rising operating and
cost structures of Japanese utilities as less expensive nuclear power
is initially replaced by more expensive thermal and eventually renewable
sources of generation at a time when economic conditions remain challenging.
Moody's will continue to evaluate regulatory and political developments
in Japan as the government manages the ongoing Fukushima Daiichi crisis
and addresses the future of nuclear power in the country.
Furthermore, the ratings of all of these utilities incorporate a
degree of uplift for system support, so remain on review for possible
downgrade pending the outcome of Moody's review of the ratings of
Japanese Government Bonds (JGB) and banks, which have been on review
for possible downgrade since May 31, 2011. A downgrade of
these entities could signal a weakening of Japan's support system,
which currently boosts the ratings of the Japanese utilities due to the
implicit financial support available from both the Japanese government
and the country's principal banks.
Ratings downgraded and remaining on review for possible downgrade include:
Chubu Electric Power Company, Inc.: to A1 senior secured
and Issuer Rating from Aa2;
Chugoku Electric Power Company, Inc.: to A1 senior
secured and Issuer Rating for Aa2;
Electric Power Development Co., Ltd. (J-Power):
to Aa3 senior unsecured and Issuer Rating from Aa2;
Hokkaido Electric Power Company, Inc.: to A1 senior
secured from Aa2;
Hokuriku Electric Power Company: to A1 senior secured from Aa2;
Kansai Electric Power Company, Inc.: to A1 senior secured
and Issuer Rating from Aa2;
Kyushu Electric Power Company, Inc.: to A1 senior secured
from Aa2;
Okinawa Electric Power Company, Inc.: to Aa3 senior
secured and Issuer Rating from Aa2;
Tokyo Gas Co., Ltd.: to Aa2 senior unsecured
from Aa1.
Ratings unchanged and remaining on review for possible downgrade include:
Osaka Gas Company at Aa2 senior unsecured.
The principal methodology used in rating these issuers was Moody's
Regulated Electric and Gas Utilities, published on September 30,
2010 and available on www.moodys.co.jp.
The rated utility companies are integrated and dominant suppliers of electricity
and gas in their respective service areas and wholesale power company.
Chubu Electric Power Company, Inc. (headquarters in Aichi),
Chugoku Electric Power Company, Inc. (headquarters in Hiroshima),
Electric Power Development Co., Ltd. (headquarters
in Tokyo), Hokkaido Electric Power Company, Inc. (headquarters
in Hokkaido), Hokuriku Electric Power Company (headquarters in Toyama),
Kansai Electric Power Company, Inc. (headquarters in Osaka),
Kyushu Electric Power Company, Inc. (headquarters in Fukuoka),
Okinawa Electric Power Company, Inc. (headquarters in Okinawa),
and Tokyo Gas Co, Ltd. (headquarters in Tokyo), Osaka
Gas Co., Ltd. (headquarters in Osaka).
Moody's will host a teleconference in Japanese language beginning at 17:00
Tokyo Time on Monday, July 4. To register and for additional
information please visit http://www.moodys.com/eventslist.aspx.
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, confidential and proprietary Moody's information.
Measures taken to ensure the quality of this information include use of
public information, reviews by a third party and verification by
the lead analyst.
Moody's considers the quality of information available on the issuer
or obligations satisfactory for the purposes of maintaining 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.
Credit ratings are Moody's current opinions of the relative future credit
risk of entities, credit commitments, or debt or debt-like
securities. Moody's defines credit risk as the risk that an entity
may not meet its contractual, financial obligations as they come
due and any estimated financial loss in the event of default. Credit
ratings do not address any other risk, including but not limited
to: liquidity risk, market value risk, or price volatility.
Credit ratings do not constitute investment or financial advice,
and credit ratings are not recommendations to purchase, sell,
or hold particular securities. No warranty, express or implied,
as to the accuracy, timeliness, completeness, merchantability
or fitness for any particular purpose of any such rating or other opinion
or information is given or made by Moody's in any form or manner whatsoever.
The credit risk of an issuer or its obligations is assessed based on information
received from the issuer or from public sources. Moody's may change
the rating when it deems necessary. Moody's may also withdraw the
rating due to insufficient information, or for other reasons.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
Please see ratings tab on the issuer/entity page on the Moody's website
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 Credit Ratings were fully digitized and accurate
data may not be available. Consequently, Moody's 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 the Moody's website for further information.
Please see the Credit Policy page on the Moody's website for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Tokyo
Kenji Okamoto
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Japan K.K.
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Correction to Text, Jul 1, 2011 Release: Moody's downgrades nine Japanese utilities; continues review for possible downgrade
