Bangkok--24 Apr--Standard & Poor's
Standard & Poor's Ratings Services said today that excluding upgrades of nine Japanese electric companies and three city gas companies to 'AA', ratings on other Japanese corporations and educational institutions would not be affected by the upgrade of the Japanese sovereign (AA/Stable/A-1+).
The upgrades of nine Japanese electric companies, excluding Hokuriku Electric Power Co., and three city gas companies are based on the removal of the constraint on their credit ratings from the Japanese sovereign rating, as well as expectations for improvements in their performance and financial profiles. Sectors such as electricity and gas, railroads, and communications, which are highly public in nature, are likely to benefit financially from the strengthening of Japan's economic structure as well as the better business environment.
Excluding the 12 electric and gas companies, Standard & Poor's will not raise its ratings on, or revise upward its outlooks on other corporations or educational institutions, following the sovereign upgrade as sovereign ratings do not currently act as a constraining factor for possible upgrades on these companies.
Immediately before today's sovereign upgrade, East Japan Railway Co. (JR East; AA-/Positive/--) was the only rated company, excluding the 12 utilities, with the same long-term issuer rating and outlook as Japan. The outlook on JR East was raised to positive on April 11, 2007, but the revision in outlook reflected improvements in rating factors specific to the company. JR East's financial profile should continue to rise steadily, supported by greater stability in its cash flow generation and its conservative financial policy. These prospects account for the positive impact of the improving economy on JR East's performance, and have no direct link to the sovereign upgrade.
The ratings and outlook on Narita International Airport Corp. (AA-/Stable /A-1+) are also not affected by the sovereign upgrade. The rating on Narita International Airport Corp. takes into consideration its 100% government ownership and supportive government policies, which indicate the continuation of its preferential business status. Nevertheless, constraints on the capacity of its single key asset, Narita Airport, currently cap revenue opportunities, and benefits from the stronger economy on the company's ability to generate cash flow are likely to be limited. Any future upward rating action is dependent on positive upside in revenue growth, not on sovereign rating changes.
Sovereign risk is always an important risk factor in analyzing credit quality, as it imposes certain constraints on ratings on corporations and educational institutions. Sovereign risk has a significant degree of influence particularly on the electricity and gas sectors and sovereign ratings become a large constraining factor on the ratings on these sectors. At the same time, however, Standard & Poor's believes ratings on corporations and educational institutions can exceed the ratings on Japan, despite some constraints from the sovereign. Companies with substantial overseas business operations and highly stable performance, for instance, are likely to achieve such levels. Long-term ratings on Toyota Motor Corp. (AAA/Stable/A-1+) and Denso Corp. (AA+/Stable/A-1+) exceed Japan's long-term sovereign rating. Canon Inc.'s (AA/Positive/A-1+) long-term rating is at the same level as the sovereign rating while its outlook is positive whereas that on the sovereign is stable. Although ratings on educational institutions do not currently exceed the sovereign, an institution with a significantly strong financial base, low reliance on subsidies from the government, and the ability to cover a drop in subsidies by cutting costs, may be rated above the sovereign.
Other than the utilities mentioned in this release, Standard & Poor's upgraded four government-related entities, two foreign financial institutions, and six insurance companies following the sovereign upgrade. Please refer to the following reports for details:
Japan Upgraded to 'AA' On Progress In Fiscal Consolidation; Outlook Stable
Ratings On Four Japanese Public Institutions Raised To 'AA' Following Upgrade On Japan
Ratings On Nine Japanese Electric And Three City Gas Companies To 'AA' On Sovereign Upgrade; Outlook Stable
Ratings On Six Japanese Insurance Companies Raised To 'AA' Following Sovereign Upgrade
Ratings On Japanese Branches Of Citibank And JPMorgan Securities Raised To 'AA' On Sovereign Upgrade
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 .
Media Contact:
David Wargin, New York (212) 438-1579
[email protected]
Analyst Contacts:
Osamu Kobayashi, Tokyo (81) 3-4550-8494
Fusako Nagao, CFA, Tokyo (81) 3-4550-8717
Kumiko Kakimoto, Tokyo (81) 3-4550-8705
Makiko Yoshimura, Tokyo (81) 3-4550-8368