Toyota Motor Co, NTT DoCoMo Inc, Tokyo Electric Power Co and other Japanese companies may see their borrowing costs inflated as Japan's sovereign credit rating plunges, analysts said.
Standard & Poor's Corp gave Japan its third downgrade in 14 months yesterday, citing inadequate efforts to clean up bad loans and pull the world's second-largest economy from recession. While S&P reiterated the ratings of Toyota and other major companies, analysts say businesses will eventually pay a price as further sovereign rating cuts are likely.
After the cut, government debt is rated "AA-" by S&P, the same level as DoCoMo, Nippon Telegraph & Telephone Corp, Japan's largest phone companies, and three notches lower than Toyota.
Corporate debt, which rarely rises above the sovereign rating of a company's home country, may be dragged down by Japan's cut.
"The rating cut on the government bonds means Japan's national strength is weakening," said Tetsunori Hoshiko, a bond trader at Shinko Securities Co. "Japan's slowing economy and declining domestic sales may become the focus of rating reviews for those companies."
A round of downgrades would probably begin with quasi-public corporations and then utilities, Hoshiko said. Japan Highway Public Corp's long-term rating by S&P was cut one notch, to "A+," this morning. The company cited the highway operator's partial reliance on public support and said the corporation's credit quality was declining in line with that of the government.
S&P affirmed its ratings on DoCoMo, Toyota, NTT, Tokyo Electric and other major corporations, although it said its outlook for Japanese corporate credit quality "generally remains negative."
Like NTT and NTT DoCoMo, Tokyo Electric is rated "AA-" by S&P.
While Japan's largest utility sees no direct connection between the public sector's credibility and that of domestic companies, a rise in government bond yields would push up borrowing costs, said Tokyo Electric spokesman Toru Ueno. Past downgrades of the company's own debt, including a rating cut by Moody's in April 1999, had little impact, said another company spokesman, Motoyasu Tamaki.
The impact of today's S&P cut on business borrowers will be limited, perhaps affecting some highly rated corporations, said Motomitsu Honma, an economist at Mitsui Sumitomo Asset Management Co.
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