Bangkok--26 Apr--Standard & Poor's
- Chubu Electric and Shikoku Electric, which operate nuclear power plants, and Electric Power Development Co. Ltd., which is constructing a nuclear power plant, are likely to face increased operational and financial risks stemming from the indirect effects of the crisis at Tokyo Electric's Fukushima No. 1 nuclear power plant.
- Standard & Poor's revised its outlook on the ratings on the three companies to negative and affirmed its ratings on the companies.
- We may lower the ratings if the three companies' key credit metrics deteriorate substantially. We assume any deterioration in their credit metrics will be the result of a greater drop in profitability or increase in financial burdens--as a consequence of possible tighter government regulation of nuclear power plant operators and the financial cost that electric power companies may bear due to the introduction of a new compensation scheme--than is factored into Standard & Poor's current expectations.
Standard & Poor's Ratings Services today revised to negative from stable its outlooks on the long-term corporate credit ratings on Chubu Electric Power Co. Inc. (AA-/Negative/A-1+), Shikoku Electric Power Co. Inc. (AA-/Negative/A-1+), and Electric Power Development Co. Ltd. (J-Power, AA-/Negative/--). We affirmed the 'AA-' long-term corporate and debt ratings and 'A-1+' short-term ratings on these three companies. The outlook revisions are based on our view that Japanese electric power companies face increased operational and financial risks in building, operating, and maintaining nuclear power plants in light of the crisis at Tokyo Electric Power Co. Inc.'s (TEPCO, BBB+/Watch Neg/A-2) Fukushima No.1 nuclear power plant.
We believe the Japanese government is highly likely to require more rigorous security requirements in a tightening of its safety standards for nuclear power plants. In Standard & Poor's view, more stringent guidelines and longer shutdowns during regular facility inspections are likely to negatively impact on the nuclear power plant operators' profits and financial metrics. In the future, the three operators are likely to have to set aside a higher percentage of their profits and cash flow in order to implement more stringent safety measures. Furthermore, in light of the ongoing emergency surrounding Tokyo Electric Power Co. Inc.'s Fukushima No.1 power plant, it is now possible the government will establish an insurance scheme into which all Japanese electric power companies with nuclear power plants will be required to contribute reserves to prepare for possible nuclear accidents.
The March 11, 2011, earthquake, tsunami and consequent aftershocks have had no direct impact on Chubu, Shikoku, and J-Power's facilities; all of their nuclear units operate without major disruption. Chubu Electric operates the Hamaoka nuclear power plant, which accounts for about 15% of the company's total electric energy output and input. Shikoku Electric operates the Ikata nuclear power plant, which accounts for around 40% of the company's total electric energy output and input. J-Power has no nuclear units in operation and is currently constructing its Oma nuclear plant.
In addition to increased risks related to operating nuclear plants, the outlook revision on the ratings on J-Power also reflects its dependence on the creditworthiness of Japan's EPCOs because it is a wholesale supplier of electricity to these companies, based on long-term offtake contracts and its crucial role in maintaining a nationwide network of key transmission facilities.
Standard & Poor's will continue to monitor the Fukushima No. 1 plant disaster's implications on government rulings and regulations related to Japan's electric power industry. At this stage, we believe that the likelihood that the government will ask these three companies to directly share in a large amount of TEPCO's liabilities is limited, given the risk of law suits by their shareholders. We may lower the ratings on Chubu Electric, Shikoku Electric, and J-Power if the government subjects them to additional rules and regulations that significantly raise their financial costs and impact on key credit metrics such as EBITDA margins and funds from operations (FFO) to total debt.
RELATED CRITERIA AND RESEARCH:
Principles Of Credit Ratings, published Feb. 16, 2011.
Rating Government-Related Entities: Methodology And Assumptions, published Dec. 9, 2010.
Corporate Ratings Criteria 2008, published April 15, 2008.
A Japanese-language version of this media release is available on Standard & Poor's Research Online at www.researchonline.jp or via CreditWire Japan on Bloomberg Professional at SPCJ. Complete ratings information is available to Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Hiroki Shibata, Tokyo (81) 3-4550-8437
Yumi Oikawa, Tokyo (81) 3-4550-8775
Daisuke Fukutomi, Tokyo 813-4550-8714