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Rating Action:

Moody's announces actions on ten Japanese utilities

 The document has been translated in other languages

01 Sep 2011

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.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's announces actions on ten Japanese utilities
No Related Data.
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