S&P downgrades Japan s TEPCO

May 30, 2011
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, TOKYO, May 30 – Rating agency Standard and Poor\’s on Monday downgraded TEPCO, the operator of Japan\’s stricken Fukushima nuclear power plant, in light of the company\’s worsening credit profile.

S&P said in a statement that it lowered Tokyo Electric Power Co.\’s long-term corporate credit rating to B+ from BBB and its short-term corporate credit rating to B from A-2.

It said that the move, with a five-notch drop in the long-term rating, was made "reflecting our view that there is an increasing likelihood that lender banks could undertake some form of restructuring of TEPCO\’s borrowings, in light of TEPCO\’s worsening stand-alone credit profile."

The statement also noted "uncertainty over the government\’s provision of extraordinary support to ensure timely debt payment under the current political climate in Japan".

A poll in the Nikkei business daily on Monday showed that almost three quarters of Japanese voters are unhappy with the centre-left government\’s handling of the nuclear disaster.

The survey came days before Prime Minister Naoto Kan faces a threatened no-confidence motion by the conservative opposition, which is unlikely to pass but nonetheless presents him with a fresh political headache.

Earlier this month the troubled utility revealed the biggest-ever loss for a Japanese firm outside the financial sector after being hit by huge costs as a result of the worst nuclear crisis since Chernobyl.

The firm posted an annual net loss of 1.25 trillion yen ($15 billion) and said its president Masataka Shimizu would step down over the crisis at its crippled nuclear plant.

The risk appraiser said it had lowered its assessment of the likelihood that TEPCO will receive extraordinary government support to "high" from "very high".

"Standard and Poor\’s still sees a strong likelihood that the government will legislate and implement the plan it announced May 13, 2011, to help TEPCO finance compensation for damage related to the nuclear crisis," the statement said.

On May 13, the government suggested for the first time that banks may have to waive some of the terms of pre-quake loans to TEPCO before it gets public help to pay out compensation.

"However, in our view, it remains unclear from the announcement whether the framework for the scheme is subject to lender banks\’ cooperation and, if it is, what form the bank cooperation will take," the statement said.

"Some politicians think banks should share the burden in some form, which may fall into our definition of default,"it added. "We now think such a scenario is more likely than we previously thought."

The power company faces the prospect of paying out compensation worth tens of billions of dollars to victims of the atomic crisis.

TEPCO and the government have yet to release estimates for the payout bill, but analysts say it could range from four trillion yen ($50 billion) to 10 trillion yen depending on how long the nuclear crisis lasts.

The utility said it had decided to scrap the reactors at the plant after the March 11 earthquake, and abandoned plans to build two more.

The Fukushima plant, sitting on the northeastern coast facing the Pacific, was crippled by the earthquake and tsunami and has spewed radiation into the air, soil and sea in the world\’s worst nuclear crisis since Chernobyl 25 years ago.

It is the fourth time that Standard and Poor\’s has downgraded TEPCO\’s long-term ratings since March 18.

Rival ratings agency Moody\’s has also downgraded the operator three times and warned that its rating remains on review for possible further action.

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