23 June 2011
TOKYO (Reuters) – Moody's Investors Service cut its credit rating on Tokyo Electric Power Co to junk status on Monday and kept the operator of Japan's crippled nuclear power plant on review for possible further downgrade, citing uncertainty over the fate of its bailout plan.
Moody's said it had lowered Tokyo Electric Power's (Tepco) senior secured rating to Ba2 from Baa2 and long-term rating to B1 from Baa3, citing rising costs and compensation fees related to the disaster at Tepco's Fukushima Daiichi nuclear plant after the March 11 earthquake and tsunami, the world's worst nuclear disaster in 25 years.
"The latest downgrade reflects further escalation of costs and damages from the continuing Fukushima nuclear plant disaster and increased concern that government support measures may not completely protect creditors from losses," Moody's said.
"The continued review for possible further downgrade is due to the uncertainty surrounding the passage of the support plan through the Diet, and the difficulty in estimating the ultimate total for Tepco's total compensation liability," it said.
The move follows a similar downgrade to junk status by ratings agency Standard and Poor's, which late last month cut its long-term credit rating on Tepco to B+ from BBB, and the utility's secured bonds rating to BB+ from BBB.
Moody's said likely damages were now beyond Tepco's ability to finance without government support, and the ratings agency said it is "very likely that a support program in some form will be legislated eventually due to TEPCO's role as Japan's largest provider of electricity."
Tepco is Japan's largest corporate bond issuer, and its shares are widely held by financial institutions.
"A failure to approve the support program would result in a multi-notch downgrade to reflect likely default through some form of debt restructuring, or court-supervised bankruptcy proceeding," Moody's said.
Even if a support program is enacted on a timely basis, Moody's said it expected Tepco to remain financially weak for several years.
Tepco will likely face rising costs for replacement power, bear higher costs for stabilizing the Fukushima plant, as well as its decommissioning, Moody's said.
"Prospects for passing higher costs onto its customers in timely manner that meets the company's financial needs are in doubt under the current regulatory regime and in view of the unfavorable economic environment," Moody's said.
"These factors would together put its equity base under significant pressure. In addition, no losses have yet been booked for compensation claims which size is still uncertain," Moody's said.
Reactor cooling systems were knocked out by the earthquake and tsunami, causing a meltdown at three of the reactors and forcing the evacuation of about 80,000 residents near the plant.
Efforts to restore control over the plant have faced repeated setbacks, with the latest on Saturday, when a rise in radiation halted the clean-up of radioactive water at the Fukushima plant hours after it got under way.
Japan's government last month agreed to set up a fund with taxpayer money to help Tepco avoid insolvency and compensate victims of the radiation crisis at the plant.
Japan's ruling party will extend a session of parliament to approve extra spending needed to rebuild areas ravaged by the earthquake, although it is unclear if the bills will win support from a combative opposition. Besides the extra budget, lawmakers have yet to approve a draft law on compensation to Tepco victims, among others.
There is much criticism about the scheme.
Japan's main opposition Liberal Democratic Party (LDP) is not prepared to accept the government's scheme to help Tepco pay billions of dollars in compensation to victims of its nuclear plant disaster, a LDP lawmaker said on Monday.
But the LDP is not united on its own counterproposal to a government bill that would allow the establishment of a fund to help Tepco compensate those affected by radiation leaks, Taro Kono told the Reuters Rebuilding Japan Summit in Tokyo.
Tepco's next shareholder meeting will be held on June 28.
(Reporting by Chikako Mogi; Editing by Chris Gallagher)