Tokyo, September 01, 2011 -- Moody's Japan K.K. has announced actions on eight
Japanese electric utilities -- of which six are dependent on nuclear
power -- and two gas utilities.
These actions conclude the review for downgrade initiated for Okinawa
Electric Power and Tokyo Gas on March 28, 2011, and for Osaka
Gas on May 31, 2011.
Today's actions also follow the downgrade of the Government of Japan
(GoJ) rating to Aa3 from Aa2 and the downgrade of the ratings of the Japanese
mega banks.
In all cases -- nuclear-dependent electric utilities,
the two non-nuclear-dependent utilities, and the gas
utilities -- Moody's considers that the ten utilities continue
to benefit from strong support from both the government and major domestic
banks.
Given their strong market positions and provision of essential services,
and their importance to the economy, the willingness and ability
of the government and banks to provide support (especially liquidity support)
-- in case of need -- are unchanged.
Nuclear-Dependent Electric Utilities
First, Moody's continues its review for downgrade of the A1 ratings
of the six electric power companies below, dependent in varying
degrees on nuclear power:
Chubu Electric Power Company, Inc.: A1 senior secured
and Issuer Rating;
Chugoku Electric Power Company, Inc.: A1 senior secured
and Issuer Rating;
Hokkaido Electric Power Company, Inc.: A1 senior secured;
Hokuriku Electric Power Company: A1 senior secured;
Kansai Electric Power Company, Inc.: A1 senior secured
and Issuer Rating;
Kyushu Electric Power Company, Inc.: A1 senior secured.
RATING RATIONALE
The standalone credit profiles of these issuers are not directly affected
by the downgrade of the Government of Japan (GoJ) rating and the downgrade
of the ratings of the mega banks.
Their ratings remain on review for downgrade, however, reflecting
the increasingly uncertain outlook for Japanese nuclear policy,
which has caused many nuclear power plants to remain offline for an extended
period due to public concerns over safety.
Accordingly, the utilities have had to replace this generation with
other sources, such as more expensive fossil fuels. This
is an endeavor that could put significant upward pressure on electricity
rates.
While they need to finance these expenses, none have been able to
access the bond market since the accident at the Fukushima Daiichi Nuclear
Power Station in March. Instead, most have incurred substantial
commercial paper balances and have increased their bank borrowings.
Meanwhile, the operator of the Fukushima Daiichi plant, Tokyo
Power Electric Company, has encountered serious financial problems.
The review will also consider the recently passed Act to Establish the
Nuclear Damage Compensation Facilitation Corporation and the impact of
this legislation on these utilities, all of which will be required
to contribute to a new corporation. The latter has been created
to support compensation payment to victims of the disaster. The
magnitude and timing of these contributions remain uncertain.
The review will be concluded when Moody's acquires more clarity
on these issues.
Non-Nuclear-Dependent Electric Utility
Secondly, Moody's Japan continues its review for downgrade of the
Aa3 senior unsecured and issuer rating of Electric Power Development Co.,
Ltd (J-Power). At the same time, the Aa3 senior secured
and issuer rating of Okinawa Electric Power Co., Ltd (Okinawa
Electric) has been confirmed with stable outlook.
RATING RATIONALE
The continuing review of J-Power is due to the highly uncertain
nature of the regulatory environment and operating conditions, particularly
as they relate to nuclear power.
J-Power does not supply nuclear-generated electricity,
and has temporarily halted construction of its first nuclear power plant
in Ohma, which was expected to be completed in 2014. If the
plant is not to be completed, it is unclear how the costs incurred
thus far will be recovered.
In addition, most of J-Power's customers are electric
power companies with significant nuclear exposure and its customer base
is not diversified. As a result, if the credit strength of
these electric power companies weaken, there is likely to be a negative
impact on J-Power's own credit quality
The confirmation of Okinawa Electric's Aa3 rating with stable outlook
reflects the company's relative insulation from nuclear-related
developments and its ability to recover higher thermal fuel costs.
Okinawa Electric generates none of its power from nuclear sources and
has no interconnection with any other Japanese integrated power utility
due to its isolated location.
Moody's notes that Okinawa Electric is the only Japanese electric
utility which was able to issue bonds after the major nuclear accident
at the Fukushima Daiichi Nuclear Power Station in March. The operator
of that plant, Tokyo Power Electric Company, has since encountered
serious financial problems. For these reasons, Moody's
has confirmed the company's Aa3 ratings, which incorporate
a two-notch uplift, reflecting the support system.
Gas Utilities
Thirdly, Moody's has downgraded the senior unsecured ratings of
Tokyo Gas Co. Ltd. and Osaka Gas Company to Aa3 from Aa2.
The ratings outlook is stable.
The previous Aa2 ratings incorporated an uplift up to the GoJ rating level.
With the downgrade of GoJ's rating to Aa3, their ratings are
also downgraded to Aa3.
The standalone credit profiles of Tokyo Gas and Osaka Gas -- i.e.
before any support system uplift - are consistent with Aa3 and
A1 levels respectively. Moody's notes that the standalone
credit profile of Tokyo Gas is slightly stronger than that of Osaka Gas
primarily because of the comparatively favorable market conditions and
growth prospects in the greater Tokyo metropolitan area, despite
the recent convergence of their financial metrics.
Moody's believes that the support system of major domestic banks and the
government for the country's major companies, including these two
gas companies, remains in place.
However, the ratings of Tokyo Gas and Osaka Gas are constrained
by the rating of GoJ, given our normal practice in Japan of not
uplifting an entity's rating to a level higher than the rating of its
highest-rated support provider purely due to the support system.
Moody's recognizes that the two gas companies remain insulated to
a large degree from the nuclear-specific developments affecting
much of the electric utility sector. They also exhibit lower business
risk, better financial metrics, and stronger liquidity profiles
than the electric utilities.
The stable outlook reflects Moody's expectation that two gas companies
will continue to keep their strong market position and stable profitability
over the intermediate terms.
The principal methodology used in rating these electricity and gas 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).
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, and 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
obligation 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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Moody's announces actions on ten Japanese utilities
