Moody's: Limited Rating Impact in Japan for Financials and Corporates - The Indonesia Today

Moody's Investors Service sees limited rating implications for most large corporates and financial institutions in Japan following the devastating earthquake which struck the country last Friday.

Most of Moody's rated entities are broadly diversified, nationally and -- for some -- internationally. As a result, they do not demonstrate material concentration risks to the most impacted prefectures of Fukushima, Iwate, Ibaraki and Miyagi.

In a special report on the implications of the quake, Moody's says that for the vast majority of rated corporates, we expect the impact will primarily involve a short-term interruption to operations due to power constraints, or more severe disruptions to operations in the most-affected prefectures. In addition, the capital expenditure required to repair damaged assets should be manageable within existing rating profiles, particularly after consideration of likely insurance coverage.

Likewise, for the Moody's rated banking sector, the vast majority of ratings will be unaffected. Importantly, national operators, such as the mega banks or major banks, do not have large operations in the most-affected regions. Even among Moody's rated regional banks, none have primary sources of operations in the impacted areas.

The special report is entitled, "Japanese Quake -- Limited Rating Impact on Financial and Non-Financial Firms."

It is possible there are individual entities with unusual levels of exposure, and Moody's will work in coming days to identify them, although at present we are not aware of any such cases.

However, currently, Moody's does see implications for four sectors -- insurance, utilities, regional banks and transportation companies, and where the relevant companies have material operations in the most-affected prefectures.

For financials, Moody's expects a material impact on the insurance sector and discusses this issue in the special comment as well as in a separate special comment published today.

According to the special comment, the amount of insured losses from this event, as well as the market participants that will ultimately bear them, will depend on the types of coverage provided (residential earthquake risks are covered by a government reinsurance program, while commercial risks are not), the amount of reinsurance purchased, and the structure of reinsurance programs.

With the utilities, the primary entity impacted at present is Tokyo Electric Power (TEPCO), which has the most publicized difficulties as it struggles to contain problems at its Fukushima Daiichi nuclear power plant, 240 km north of Tokyo. Two reactors at this plant have already been severely damaged. In addition, it remains doubtful over how quickly other reactors at this site can be returned to operations.

We also see implications for regional banks operating in the quake-hit regions as the concentration risk for those regional banks is significant, and the implications possibly material. However, Moody's does not rate any of these banks, and we also expect the Bank of Japan to provide liquidity to the banking system as required in coming days.

Finally with the transportation sector, Moody's sees material levels of exposure to railroad and expressway operators East Japan Railway Company (JR East, Aa1), East Nippon Expressway Company Limited (E-NEXCO, Aa2), and Japan Expressway Holding and Debt Repayment Agency (JEHDRA, Aa2). Each has substantial operations in the most-affected areas.