May 29, 2012 / 11:09 AM / in 5 years

TEXT-S&P:Ratings on Japan's Shikoku EPCO lowered to 'A';otlk neg

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(The following statement was released by the rating agency)

May 29 -

-- Measures of Shikoku Electric's financial performance have deteriorated due to higher costs for fuel to replace around 40% of its power generation capacity following closure of its nuclear reactors.

-- Standard & Poor's lowered its long-term ratings to 'A' from 'A+'. At the same time, we affirmed our 'A-1' short-term rating on the company.

-- We have taken into account a greater deterioration in key financial ratios than we had incorporated into our assumptions in October 2011. We assume that all three of Shikoku Electric's nuclear reactors will remain idle until at least the end of fiscal 2012 (ending March 31, 2013) as a result of strong nationwide public opposition to the restart of nuclear reactors.

-- We forecast that Shikoku Electric will likely post significant operating and net losses in fiscal 2012 due to dramatically higher costs for fuel to replace nuclear power.

-- The negative outlook reflects our expectation that the ratings on Shikoku Electric will remain under pressure because of continuing uncertainty about the nation's energy policy. A potential review of the existing favorable regulatory framework for electric power companies also produces negative sentiment about the sector.

Standard & Poor's Ratings Services today lowered its long-term corporate credit and debt ratings on Shikoku Electric Power Co. Inc. (Shikoku Electric) to 'A' from 'A+'. At the same time, we affirmed our 'A-1' short-term rating on the company. The outlook on the long-term corporate credit rating is negative.

The downgrade reflects deterioration in measures of Shikoku Electric's financial performance as a result of the suspension of all three nuclear reactors at its Ikata power plant, which produces roughly 40% of all the power the company generates. Higher fuel costs have eroded Shikoku Electric's profitability following its substitution of thermal power generation for nuclear power generation. We believe Shikoku Electric is highly likely to maintain its policy not to pass higher costs for replacement fuel to customers for at least the next year.

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