Upgrades unlikely for three Japanese electric utilities amid negative outlook

There's a chance for redemption, though.

Moody's will continue monitoring the progress on nuclear restart process and whether rate increases would be sufficient to sustain profits and repair balance sheets of three Japanese electric power utilities it has rated, whose outlooks it mentioned remain negative.

According to a release from Moody's Japan K.K., it has affirmed its ratings on the following: Hokkaido Electric Power Company, Inc (Hokkaido); Kansai Electric Power Company, Inc (Kansai); and Kyushu Electric Power Company, Inc (Kyushu).

Moody's said that the ratings outlooks remain negative for all three issuers. All of them are regional integrated power utilities that own nuclear facilities.

Given the negative outlook associated with all the three issuers, and heavily weakened state of their balance sheets and diluted capital bases, upgrades are unlikely in the near term.

Here's more from Moody's Japan K.K.:

However, the ratings outlook could return to stable in due course should the utilities re-acquire a sustainable level of operating profit as a result of sufficient tariff increase or actual restart of nuclear facilities.

In addition, Moody's will observe the adequacy of future tariff setting and any other arrangements capable of repairing the extensive balance sheet damage to these entities since the Fukushima disaster and the likely time to achieve adequate repair. Such factors will be critical to any stabilization of their ratings.

On the other hand, any change on supportiveness of regulatory environment and/or financial institutions could lead to further negative rating actions.

The approval processes on Hokkaido's second rate increase and on Kyushu's Sendai plant would be the key monitoring points.

We will closely observe the future short term profitability of the sector and particularly the profitability and balance sheet strength of those rated entities with the highest exposure to nuclear generation.

Should the rapidly deteriorating financial position of these companies fail to be addressed in the short term, in the absence of other countermeasures or concrete developments, this would likely lead to further downgrades.