Rating Action: Moody's assigns (P)A3 to Kansai Electric's domestic shelf registration
Global Credit Research - 11 Aug 2020
Total amount of shelf registration is JPY 950 billion
Tokyo, August 11, 2020 -- Moody's Japan K.K. has assigned a (P)A3 senior secured rating to Kansai Electric Power Company, Incorporated's domestic shelf registration. The rating outlook is negative.
The specific shelf registration rated is:
** JPY 950 billion effective 8 August 2020
RATINGS RATIONALE
The rating reflects (1) the company's prominent position in the Kansai region; (2) the competitive electric rates from lower fuel costs related to nuclear power generation; (3) 100% ownership of its transmission and distribution subsidiary; and (4) our expectation that regulations and institutional arrangements will continue to support the industry to some extent.
The rating takes into consideration (1) the risks related to nuclear power generation, including capital needs for nuclear safety assessments; (2) the ongoing deregulation of the industry; and (3) increasing growth investments that hamper deleveraging and raise business risks.
The negative rating outlook reflects our concerns over Kansai Electric's oversight, control and governance matters, which increases risk to the ongoing operation of its nuclear reactors. The bribery scandal could lead to higher negative public sentiment on nuclear plants in Japan, impeding Kansai Electric's nuclear business and risking the competitiveness it has as a provider of low-cost nuclear power in the deregulated retail market.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The outlook could return to stable if the company demonstrates that it has strengthened its governance and management oversight, with RCF/net debt at around 10%. Given the negative outlook, an upgrade is unlikely in the near term. However, we could upgrade Kansai Electric's ratings if the company improves its cash flow, reduces its leverage and maintains low business risk, resulting in significantly stronger credit metrics with RCF/net debt well above mid-teen percentage.
We could downgrade Kansai Electric's ratings if (1) there is an adverse change in the regulatory environment or support from financial institutions; (2) the utility undertakes a large investment that increases its debt and business risk; or (3) its cash flow deteriorates materially because of intensifying competition or unexpected events. Specifically, we could downgrade the ratings if RCF/net debt sustained below the high single-digit percentage.
The principal methodology used in this rating was Unregulated Utilities and Unregulated Power Companies (Japanese) published in November 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1150645. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Kansai Electric Power Company, Incorporated, headquartered in Osaka, Japan, is one of the 10 largest utility companies in Japan.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Yukiko Asanuma Analyst Corporate Finance Group Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4110 Client Service: 81 3 5408 4100 Mihoko Manabe Associate Managing Director Corporate Finance Group JOURNALISTS: 81 3 5408 4110 Client Service: 81 3 5408 4100 Releasing Office: Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: 81 3 5408 4110 Client Service: 81 3 5408 4100
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