The Tokyo Electric Power Co. Ltd. (TEPCO) had its credit rating cut to junk status by credit rating agency Standard & Poor’s on Monday.
S&P, based in New York, lowered TEPCO’s unsecured bond rating from BBB to B+, the highest grade among “junk” bonds. The ratings agency cited liabilities from the company’s nuclear power plants following March’s earthquake and resulting tsunami in northeastern Japan.
The Japanese government this month set up a fund to help keep TEPCO solvent and able to compensate residents affected by the nuclear crisis. TEPCO’s Fukushima Daiichi power plant lost power and began emitting radiation to nearby towns after the earthquake.
Three reactors at the plant experienced partial meltdowns, and almost 100,000 residents were forced to evacuate.
TEPCO President Masataka Shimizu recently resigned to take responsibility for the worst nuclear crisis since Chernobyl 25 years ago.
On May 20, the company reported a $15 billion loss, the largest ever consolidated net loss by a Japanese company, with about $12.1 billion in losses specifically arising from the earthquake and the subsequent accident at the Fukushima nuclear power plant.
“Standard & Poor’s now believes that some politicians think banks should share the burden in some form, which may fall into our definition of default,” S&P said in its ratings statement.
“We now think such a scenario is more likely than previously thought.”
S&P said that it believed the Japanese government would step in to prevent a default of TEPCO’s bonds. TEPCO is Japan’s largest bond issuer among corporations.
Another ratings agency, Moody’s Investors Service, has put TEPCO on negative watch.
According to the Japan Times, four agricultural and diary prefectures near the Fukushima plant are seeking around 10 billion yen (US$124 million) in compensation. This is to compensate the local farmers due to a restriction of sales of local vegetables and diary products because of radiation.
Even more worrisome for investors is the fact that nobody really knows how big liabilities might grow in the future due to compensation to the public. Meanwhile, there continues to be uncertainty about the company’s efforts to stabilize the reactors at Fukushima, where a large amount of contaminated sea water is a major obstacle.
