Moody’s has been explaining why it downgraded Tepco’s credit rating in the wake of the Fukushima crisis. It’s hardly a decision that needs much justification: the problems have been as visible and arguably as damaging to the company’s reputation as the Gulf of Mexico spill was to BP.
But Moody’s report makes some interesting points: the first being that its analysts think there is a high likelihood of the Japanese government stepping in to prop up the company. This actually gives the company a higher long-term rating than its stand-alone credit profile (SACP), which is now a junk-rated BB+.
Apart from the prospect of government support, however, Tepco’s future looks bleak in Moody’s opinion. The ratings agency says it will continue to face high costs as a result of the lost nuclear power generation, from five sources:
- Having to buy replacement oil and gas
- Recovery costs
- Decommissioning the sx reactors at Fukushima
- Cleanup and other costs
Even if the company manages to buy enough oil and gas, and restarts oil- and LNG-fired plants, however, Moody’s still estimates Tepco will not be able to meet peak demand this summer. “We expect the company to continue to place restraints on the demand side,” the agency says, which to us, sounds like more rolling blackouts.
Luckily, the utility’s immediate liquidity is reasonably comfortable. It has raised Y1.9 trillion from its banks, which have remained supportive, and these loans are unsecured, unguaranteed and long-term. All this should help it pay back the Y500m of debt it has that matures in the next 12 months.
But in the longer term, with the total debt to equity ratio expected to rise from 75 to 85 per cent, and total debt to have increased by roughly a quarter from September 2010 to March 2012, the future is less certain – especially if it is unable to get enough capacity back on stream to meet demand.