TEPCO: With $91 Billion In Debt, Got CDS?

Tyler Durden's picture

Now that the market has had some time to digest the events over the weekend, it may be time to hedge risk on the company most exposed to the nuclear shock in Japan, Tokyo Electric Power Company. The company was just downgraded by Goldman Sachs to Neutral (which means it held it as a Buy until now) as the firm does not see "a dividend hike"... We see far greater issues for the company's equity investors than just a dividend hike. Number one: TEPCO (9501.T) has over $90 billion in debt and roughly $30 billion in equity buffer. As Bruce Krasting points out vis a vis the equity - "it's gone." More from BK: "I used to work on financing these things. It's all long term leases. The actual debt behind the power plants is multiples of what they show on the balance sheet."

From Goldman's just released report:

TEPCO’s Fukushima No. 1 and No. 2 nuclear power plants were shut down following Friday’s earthquake, and the government declared a nuclear emergency at the site given cooling system and other issues. We believe the plants could be shut down for over a year given the probable response to this, and lower our forecasts for FY3/11 on to reflect this. Our Buy rating assumed a dividend hike to ¥70 in FY3/13, but we now believe this will be difficult and cut our forecast to ¥60, lowering our target price to ¥2,100 from ¥2,400 and our rating to Neutral. While on our Buy List, the stock fell 9.9% (TOPIX +4.0%); over the last 12 months, it fell 12.7% (TOPIX -1.6%).

Yeah, scratch the dividend hike. And here is something far more problematic for the company:

Even S&P had some choice words to say about the company back in January:

Standard & Poor's on Friday lowered the credit ratings of five electricity providers, including Tokyo Electric Power Co. (9501), or Tepco, and two city gas firms.

The utilities were knocked down a notch to AA minus from AA in a move that echoed the ratings agency's cut of Japan's long-term sovereign debt a day earlier.

In explaining the move, the U.S. rating agency cited the companies' "status as public utilities," noting that they are "crucial to the government's domestic energy policy." The Tokyo metropolitan government, Aichi Prefecture, and government-affiliated institutions were also downgraded to AA minus.

By contrast, S&P affirmed the ratings of Toyota Motor Corp. (7203), Canon Inc. (7751) and other Japanese companies rated AA. They are likely to maintain their ability to meet financial commitments even if Japan defaults on its debt, explains S&P.

And while readers call their sales coverage to see if CDS available in the name (and with $90 billion in debt there has to be), here is the company's summary financials. Once CDS trading resumes when London opens, this will be one to follow.