Tokyo, April 28, 2020 -- Moody's Japan K.K. has affirmed Kansai Electric Power
Company, Incorporated's A3 long-term issuer and senior
secured bond ratings, as well as the (P)A3 senior secured shelf
registration. The outlook remains negative.
Moody's has changed the methodology, which applies to rate
Japanese utilities, including Kansai Electric, to Unregulated
Utilities and Unregulated Power Companies from Regulated Electric and
Gas Utilities.
RATINGS RATIONALE
Kansai Electric's A3 rating reflects its prominent franchise with
a dominant market share in the Kansai region -- Japan's second
largest metropolitan area encompassing Osaka -- and stable earnings
from its electric utility operations.
However, the ongoing deregulation of the Japanese electric sector
has increased competition for Kansai Electric's core business --
the sale of electricity to retail customers -- and weakened the predictability
of cost recovery and overall earnings. Also, limited growth
opportunity in its core business has caused Kansai Electric to seek growth
instead in non-utility investments, and an evolution in its
business model. Accordingly, the unregulated utilities methodology
better reflects the business profile of Kansai Electric.
The change of the methodology itself does not cause any change of ratings
and outlook, because Moody's has been already incorporating
such evolving business environment since the deregulation in 2016 into
our assessment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The negative rating outlook reflects our concerns over Kansai Electric's
oversight, control and governance matters, which increases
risk to the ongoing operation of its nuclear reactors. The bribery
scandal could lead to higher negative public sentiment on nuclear plants
in Japan, impeding Kansai Electric's nuclear business and competitive
position in the deregulated retail market, owing to the low-cost
nuclear power. Moody's estimates that its retained cash flow
(RCF)/net debt will remain at around 8% if the company cannot operate
its 7 reactors.
The outlook could return to stable if the company demonstrates that it
has strengthened its governance and management oversight, with RCF/net
debt at around 10%.
Given the negative outlook, an upgrade is unlikely in the near term.
However, Moody's could upgrade Kansai Electric's ratings if
the company improves its cash flow, reduces its leverage and maintains
low business risk, resulting in significantly stronger credit metrics
with RCF/net debt well above mid-teen percentage.
Moody's could downgrade Kansai Electric's ratings if (1) there is an adverse
change in the regulatory environment or support from financial institutions;
(2) the utility undertakes a large investment that increases its debt
and business risk; or (3) its cash flow deteriorates materially because
of intensifying competition or unexpected events. Specifically,
Moody's could downgrade the ratings if RCF/net debt sustained below
the high single-digit percentage.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies (Japanese) published in November 2018
and available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1150645.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Kansai Electric Power Company, Incorporated, headquartered
in Osaka, Japan, is one of the ten major electric utilities
in Japan.
List of affected ratings:
..Issuer: Kansai Electric Power Company, Incorporated
....LT Issuer Rating, Affirmed A3
....LT Issuer Rating (Domestic), Affirmed
A3
....Senior Secured (Domestic), Affirmed
A3
....Senior Secured (Foreign), Affirmed
A3
....Senior Secured Shelf (Domestic),
Affirmed (P)A3
....Outlook, remains negative
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Yukiko Asanuma
Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
