(The following statement was released by the rating agency)
Oct 12 -
-- Chubu Electric and Shikoku Electric, operators of the Hamaoka and
Ikata nuclear power plants, continue to face increasing operational and
financial risks following the March 2011 disaster at TEPCO's Fukushima No. 1
-- Standard & Poor's lowered its long-term corporate credit ratings on
Chubu Electric and Shikoku Electric to 'A-' from 'A' to reflect our updated
financial projections. At the same time, we lowered our short-term ratings on
both companies to 'A-2' from 'A-1'.
-- We have incorporated into our projections a longer time period for the
companies to recover from deterioration in key financial ratios than we
assumed at our last review in May 2012.
-- The negative outlooks reflect our expectation that strong pressure on
the ratings for the companies will continue owing to a delay in the timetable
to restart their idle nuclear reactors. It also reflects our expectation that
pressure on the ratings will continue owing to still uncertain specific action
plans and timelines regarding the existing favorable regulatory framework's
Standard & Poor's Ratings Services today lowered its long-term corporate credit and debt
ratings on Chubu Electric Power Co. Inc. and Shikoku Electric Power Co. Inc. to 'A-' from 'A'.
We lowered our short-term ratings on the companies to 'A-2' from 'A-1'. The outlooks on the
long-term corporate credit ratings are negative. The stand-alone credit
profiles (SACP) for Chubu Electric and Shikoku Electric are 'a-'. Our ratings
on the companies reflect our opinion that there is a ''moderate'' likelihood
of the government providing them with timely and sufficient extraordinary
support were they to experience financial distress.
The one-notch downgrades of Chubu Electric and Shikoku Electric reflect our
view that prospects for restarting some of their reactors in fiscal 2013
(ending March 31, 2014) have diminished. Recent government comments regarding
nuclear energy's future in Japan and the government's general lack of
direction regarding reactor restarts or implementation of higher electricity
rates lead us to believe that the likelihood that none of the reactors will
restart in fiscal 2013 has increased. Therefore, we also see a higher
likelihood that Chubu Electric and Shikoku Electric will take longer to
recover financially than we expected. Chubu Electric's Hamaoka nuclear power
plant and Shikoku Electric's Ikata nuclear power plant remain shut following
the March 2011 disaster at Tokyo Electric Power Co. Inc.'s (TEPCO;
B+/Negative/B) Fukushima No. 1 nuclear plant. The plants contribute roughly
15% and 40% of the respective companies' total power generation capacity.
We think that based on our updated assumptions, both Chubu Electric and
Shikoku Electric's cash flow adequacy--measured by the ratio of their funds
from operations (FFO) to total debt--will remain weak for longer than we
anticipated in May 2012. We now forecast that their EBITDA margins and FFO to
total debt will continue to remain below 10% in fiscal 2012 (ending March 31,
2013) and fiscal 2013.
We note that Chubu Electric is relatively less dependent on nuclear power
generation than most of Japan's nuclear operators. However, it has postponed a
restart of its Hamaoka plant. Accordingly, we think Chubu Electric's weak
financial performance will continue for longer than we assumed in April 2012
if it does not increase electricity rates in the near future.
We still think that Shikoku Electric's Ikata reactors will be among the
earliest of Japan's idle reactors to restart. But Shikoku Electric's
relatively high dependency on nuclear power generation leads us to believe
that key financial ratios for the company will deteriorate further and take
longer to recover than we assumed in May 2012.
The ratings on Chubu Electric and Shikoku Electric reflect our opinion that
there is a "moderate" likelihood that the government would provide them with
timely and sufficient extraordinary support in the event they were to
experience financial distress. According to our criteria for
government-related entities, a "moderate" likelihood of support does not
justify any elevation of the ratings on Chubu Electric or Shikoku Electric to
levels higher than the SACPs for the companies.
The negative outlooks on both Chubu Electric and Shikoku Electric reflect our
view that uncertain business and operating conditions continue to affect
electric utility companies in Japan (AA-/Negative/A-1+) as the nation
struggles to map its future energy strategy. They also reflect the still
uncertain specific action plans and timelines regarding the government's
review process for the existing favorable regulatory framework. Given the many
pressing problems likely to occur over the next six months, we believe
pressure on our ratings on Chubu Electric and Shikoku Electric will continue.
Given already deteriorated and likely further deteriorating financial ratios
for the companies, we may lower the ratings on Chubu Electric and Shikoku
Electric again if the government doesn't show any concrete plans to either
implement higher electricity rates or approve reactor restarts in the next
three-to-six months. We may also lower the ratings further if we think the
likelihood of reactor restarts at Hamaoka and Ikata will not increase until
well after April 2013 and the likelihood of electricity rate hikes in near
future will not increase.
We may revise the outlooks to stable if Chubu Electric and Shikoku Electric's
financial performance becomes materially better than we expected. However, any
upward pressure on the ratings is limited at this stage.
RELATED CRITERIA AND RESEARCH
Corporate Ratings Criteria 2008, April 15, 2008
Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
2008 Corporate Criteria: Commercial Paper, April 15, 2008