Tokyo, May 10, 2012 -- Moody's Japan K.K. has downgraded the ratings for
seven Japanese electric power companies.
The ratings outlook is negative for all seven companies.
These actions conclude the review initiated on March 28, 2011.
Long-term ratings downgraded by two notches include:
(1) Chubu Electric Power Company, Inc: senior secured and
Issuer Rating to A3 from A1; short-term rating to Prime-2
from Prime-1;
(2) Chugoku Electric Power Company, Inc: senior secured and
Issuer Rating to A3 from A1;
(3) Hokkaido Electric Power Company, Inc: senior secured to
A3 from A1; short-term rating to Prime-2 from Prime-1;
(4) Hokuriku Electric Power Company: senior secured to A3 from A1;
short-term rating to Prime-2 from Prime-1;
(5) Kansai Electric Power Company, Inc: senior secured and
Issuer Rating to A3 from A1; and
(6) Kyushu Electric Power Company, Inc: senior secured to
A3 from A1.
Long-term ratings downgraded by one notch:
(1) Electric Power Development Co., Ltd (J-Power):
senior unsecured and Issuer Rating to A1 from Aa3.
RATINGS RATIONALE
The two-notch downgrades of the six utilities with substantial
nuclear power-generation capacity reflect Moody's expectation
that they will experience an extended period of greater regulatory uncertainty,
lower profitability and cash flows, higher capital spending,
and capital structures generally weaker than evident before the accident
triggered by the March 11, 2011 earthquake at the Fukushima Daiichi
Nuclear Power Station.
The one-notch downgrade of J-Power reflects its direct and
indirect exposures to increased regulatory uncertainty. While the
company has no nuclear-generating capacity, it is directly
exposed through its investment in a partially completed nuclear power
plant, and indirectly because almost all of its customers are utilities
with exposures to nuclear generation.
The negative rating outlooks are based on Moody's view that uncertainties
regarding Japan's nuclear-generation policy and those related
decisions that must be made by the relevant authorities will significantly
affect both the profitability and long-term financial profiles
of these entities.
While the Japanese regulatory framework remains supportive, most
of Japan's electric power utilities are experiencing deterioration
in their profitability, cash flows and balance sheet strength.
This situation is due to the time it is taking to conclude deliberations
on the industry issues that emerged from the accident at Fukushima Daiichi.
Moody's expects that the outcome of these deliberations, while
providing much needed clarity, will also continue or perhaps increase
that financial stress.
Prolonged shut-downs of nuclear plants nationwide and the resulting
reliance on fossil fuel have led to significantly higher operating costs
for these utilities. As a result of the time taken to arrive at
a clear regulatory response, the six rated nuclear-generating
utilities have not applied to the central government for tariff changes
and almost all companies experienced losses in FYE03/2012. Depending
on the timing and nature of the regulatory response, all six companies
may record losses in FYE3/2013.
In addition to such losses, they have been forced to raise capital
spending due to new regulations and the need to construct new thermal-generating
capacity. Reduced cash flows and increased capital spending demands
will raise borrowings and leverage. Balance-sheet leverage
will further rise if the utilities are required to write off some of their
investments in their nuclear facilities.
A combination of these factors will lead to an elevation of financial
leverage that will extend for at least several years.
As indicated, these utilities have already experienced a protracted
period of regulatory uncertainty. We think that the regulators
will balance their broad objective of reducing dependence on nuclear power
against the resulting costs for alternative fuels, new energy generation
facilities, and the write-off of existing investments.
In addition, it may take a considerably longer time to reach and
implement a consensus solution that appropriately balances political considerations
and customer interests.
While the utilities are expected to ultimately be able to pass most of
these cost increases onto customers, we think that there will be
a substantial delay in the timing of cost recoveries and that all utilities
with nuclear exposures may be expected to absorb certain costs.
Moody's believes that these decisions will be less favorable to
their financial profiles than was the case in the past. For these
nuclear-dependent utilities, Moody's has lowered its
assessment of the rating methodology factors for the regulatory framework
and the ability to recover costs and earn returns. Moody's
updated view considers Japan's evolving policy on nuclear-power
generation.
We have not made a blanket reassessment of regulatory support for all
companies in the industry. Instead, our reassessment is focused
on utilities that have nuclear-generation capacity and, as
such, does not affect our current assessments of Okinawa Electric
Power Company, Incorporated (Aa3, stable) and J-Power.
From a long-term perspective, Moody's also believes
that the regulatory framework is fundamentally supportive for the industry.
As a non-nuclear-dependent wholesaler of electric power,
J-Power is less affected by the stresses in the industry and its
higher rating reflects factors that differentiate the company's
credit quality from those of the six utilities with more substantial nuclear
exposures. J-Power's rating is supported by that it
recorded a positive operating profit for FYE3/21012, its diversified
customer base through long-term contracts with 10 regional utilities,
and its favorable competitive position as one of the lowest-cost
producers of electricity in Japan.
J-Power's downgrade to A1 reflects the generally weaker financial
state of its customer base and uncertainty regarding its ability to pass
through all the costs of its investment in its partially completed nuclear
power plant in Ohma.
For these utilities, the bond market is unavailable as a funding
source under the favorable conditions enjoyed before. Instead,
they have re-financed almost all their matured bonds with bank
loans. The availability of financing from banks is viewed as a
major supporting factor for the ratings at their new levels. However,
Moody's also believes that the availability of bank lending will
not continue indefinitely without more clarity on the timeliness and magnitude
of cost recovery. Moody's will continue to monitor closely
the behavior of the banks toward the utilities.
Given the negative outlook associated with all of the affected issuers,
an upgrade is unlikely in the near term. The ratings outlook could
return to stable if the utilities successfully return to profitability
in FYE 3/2013 by re-starting their nuclear operations, or
by implementing tariff changes and cost reductions.
The ratings could face further downward pressure if Moody's believes
that a loss is likely for FYE 3/2013, and without clear indications
that regulatory support will allow a return to profitability in FYE 3/2014.
The ratings also may be downgraded if the banks show signs of reducing
their supportive. Critical to the full recovery of this utilities
sector is a return to unfettered access to the bond market. Indications
of significant negative changes in the regulatory environment would also
lead to downward pressure on their ratings.
The principal methodology used in rating these electricity 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
in their respective service areas and J-Power is a nationwide wholesale
power company.
Chubu Electric Power Company, Inc. (headquarters in Aichi),
Chugoku Electric Power Company, Inc. (headquarters in Hiroshima),
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),
and Electric Power Development Co., Ltd. (headquarters
in Tokyo).
By the definition of Japan regulation, those ratings below are not
requested by the issuer or the rating-related entities.
Hokkaido Electric Power Company, Inc.'s long term ratings
as below:
Series252, JPY 15 billion, due 2014
Series254, JPY 20 billion, due 2015
Series256, JPY 20 billion, due 2016
Series257, JPY 20 billion, due 2016
Series258, JPY 20 billion, due 2016
Series261, JPY 30 billion, due 2017
Series263, JPY 15 billion, due 2018
Series264, JPY 20 billion, due 2018
Series265, JPY 30 billion, due 2018
Series271, JPY 15 billion, due 2020
Series277, JPY 20 billion, due 2013
Series280, JPY 20 billion, due 2012
Hokuriku Electric Power Company's long term ratings as below:
Series245, JPY 30 billion, due 2015
Series248, JPY 30 billion, due 2016
Series250, JPY 30 billion, due 2017
Series260, JPY 20 billion, due 2020
Series269, JPY 15 billion, due 2012
Series270, JPY 20 billion, due 2015
Series272, JPY 20 billion, due 2018
Moody's will host a teleconference (for Investors only) in Japanese language
beginning at 16:00 Tokyo Time on Friday, May 11. To
register and for additional information please visit http://www.moodys.com/eventslist.aspx.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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
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For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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or category/class of debt or pursuant to a program for which the ratings
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this announcement provides relevant regulatory disclosures in relation
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rating action for securities that derive their credit ratings from the
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this announcement provides relevant 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
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Information sources used to prepare the credit rating are the following:
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Measures taken to ensure the quality of this information include use of
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may not meet its contractual, financial obligations as they come
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Kazusada?Hirose
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
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Tokyo 105-6220
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Richard Bittenbender
Associate Managing Director
Corporate Finance Group
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Releasing Office:
Moody's Japan K.K.
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Moody's downgrades seven Japanese electric companies
