Tue, May 17, 2011 - Page 11 News List

Moody’s downgrades Japan’s TEPCO


Ratings agency Moody’s yesterday again downgraded Tokyo Electric Power Co (TEPCO), the operator of Japan’s stricken Fukushima Dai-ichi nuclear plant, and warned the rating would remain on review for further possible action.

The Japanese unit of the major US credit rating firm said it downgraded TEPCO’s senior secured debt by one notch to Baa2. It also downgraded TEPCO’s long-term issuer rating two notches to Baa3 from Baa1.

In its third downgrade of Asia’s biggest power company since the March 11 earthquake, it cited recent assessments that damage to the company’s Fukushima Dai-ichi nuclear power plant has been more severe than previously indicated.

Moody’s said the downgrade also came amid “increased clarity that the Japanese government intends to hold TEPCO responsible for compensating various parties harmed by the accident” at the plant.

It also cited “uncertainty as to how TEPCO will be actually supported by the government to meet its compensation and other expenses following the March 11 earthquake.”

TEPCO on Sunday said that a meltdown began at the plant within hours of the March 11 earthquake — earlier than thought. About 3,000 tonnes of highly radioactive contaminated waste water have leaked through holes created by melted fuel into the reactor basement, forcing officials to think of ways to pump it out and process it.

More than 80,000 people have been forced from homes, farms and businesses in a 20km zone around the plant that was hit by a tsunami on March 11 and has since leaked radiation.

The power company faces compensation payments worth tens of billions of US dollars for victims of the world’s worst nuclear accident since Chernobyl.

Japan’s government will create a body to handle claims made against TEPCO, which will be funded by contributions from power companies and government bonds that carry no interest, but can be cashed whenever necessary.

Under the scheme, TEPCO will receive funding and other forms of support from the body and make repayments over a long period of time.

Moody’s warned that this would be “a substantial drain” on TEPCO’s cash flow and “reduce the company’s financial flexibility.”

The agency also said that “there is the risk that creditors will be asked to take haircuts in respect of their lending. Such an outcome would, in Moody’s view, represent a default by TEPCO.”

Banking shares have tumbled on comments from Japanese Chief Cabinet Secretary Yukio Edano about the company’s fate — in particular, that the public would not accept government financial support for TEPCO unless banks waive some pre-quake loan terms.

Moody’s said its ratings remained on review for further possible downgrades amid uncertainty over the magnitude of the damages and costs to be borne by TEPCO as the nuclear crisis continues, as well as high costs for replacement fuel. TEPCO supplies electricity for Tokyo and the wider Kanto region, an area that accounts for more than a third of the nation’s GDP.

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