Tag: Tepco

Kiran Stacey

Tepco president Masataka Shimizu

Tepco president Masataka Shimizu

The news last week that the Japanese government was close to agreeing a bailout plan for Tepco, the electricity company that owns the Fukushima nuclear plant, should have come as a relief for the company and its debt holders.

But the opposite appears to be true. Amid uncertainty over the structure of the bailout and when it might finally be agreed, Moody’s has taken the proactive step of downgrading the company’s debt, saying that the plan as it looks so far actually increases the risk of a default.

The clause that particularly seems to trouble the ratings agency is the one that Tepco will only be insured for compensation payments of up to Y120bn. Anything above that limit will be the company’s liability.

Kiran Stacey

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+.

A new phase in Tepco’s “BP moment”: just like the whirlpool created by the massive tsunami after the March 11 earthquake, Japan’s biggest electricity provider and operator of the crippled Fukushima nuclear power plant is dragging peers into its own troubled vortex.

Investors’ attitudes to Japan’s other utilities have not been nearly as severe as the scare that has driven Tepco’s share price down 73 per cent since March 11, and further widened its CDS spreads on Monday by 143bps to 473bps (amid fears, as Markit’s Gavan Nolan remarked, that the company “is losing control of the situation”). But it’s still a very worrying sign for anybody involved in Japan’s nuclear power industry.

If energy markets were ever confused, it’s now.

On the one hand the Japanese earthquake immediately implies bearishness for crude oil on account of lower demand. On the other hand it implies a hike in demand for refined products.

From another perspective completely, it also implies a huge surplus of petrochemicals which will have to make their way into the global product markets overall.

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