Saibu Gas Holdings Co., Ltd

NEWS RELEASE

Apr 07, 2021 R&I Affirms A+/a-1, Stable: Saibu Gas Holdings Co., Ltd.

Rating and Investment Information, Inc. (R&I) has announced the following: ISSUER: Saibu Gas Holdings Co., Ltd. Issuer Rating: A+, Affirmed Rating Outlook: Stable

Commercial Paper: a-1, Affirmed

RATIONALE: Saibu Gas Holdings Co., Ltd. is a pure holding company of the Saibu Gas Group formed by the split- up of the former Saibu Gas Co., Ltd. for the separation of business functions in April 2021. The gas energy business mainly providing city gas and liquefied petroleum gas (LPG) is conducted by local subsidiaries. The Group embarked on this reorganization to establish a business structure tailored to local characteristics and reinforce its management base. The transition to the pure holding company structure has no impact on its business base, and the Group has strong cohesiveness. The rating for Saibu Gas Holdings reflects the Group's creditworthiness. Its core city gas business serves major cities of the northern Kyushu region, such as Fukuoka, Kitakyushu, Kumamoto, Nagasaki, and Sasebo. The company is ranked after the three leading players in the industry, with about 1.1 million customers. While sales of commercial and industrial gas, particularly to restaurants, have declined due to the impact of the COVID-19 pandemic, residential gas sales are supported by demand from people staying home amid the pandemic. Since the full liberalization of the retail city gas market, customers, especially in the residential gas segment, have still been migrating to services provided by other operators, which is partly due to aggressive marketing efforts by Kyushu Electric Power Co., Inc. In the retail electricity business, which the company entered in FY2016 (the year ended March 2017), the number of supply contracts is steadily growing. Its operating base centered on the city gas business is unlikely to be undermined. Since natural gas produces the least CO2 of all fossil fuels, R&I considers that a shift from oil and other fuels creates relatively large potential demand. The move toward decarbonization is faster than anticipated, with the Suga administration announcing its target of carbon neutrality by 2050. Close eyes will be on future developments. Owing to a series of large investment projects, including the construction of the Hibiki LNG terminal in Kitakyushu City and the northern Kyushu pipeline, Saibu Gas Holdings is heavily indebted and its financial base is below the level required for the rating. To effectively utilize the Hibiki LNG terminal, it is now in discussions with a Russian enterprise, aiming to establish a joint venture that sells liquefied natural gas in Asia. R&I will pay attention to the progress of the discussions, focusing on whether or not this pushes Saibu Gas Holdings into excessive risk-taking. The company also has a plan to construct a natural gas-fired power plant on a site adjacent to the terminal but postponed a determination on the feasibility thereof. When the plan is implemented, R&I will keep an eye on any impact on the company's financial position. The company is working to expand businesses other than the city gas business, such as real estate. Its group mid-term management plan formulated in 2019, "Scrum 2022", calls for raising the proportion of the real estate business to approximately 20% in the business portfolio by FY2022. Saibu Gas Holdings plans to invest up to 50 billion yen in growth areas including real estate. R&I will closely examine the profitability of such businesses and the extent of the financial burden for the investment.

The primary rating methodologies applied to this rating are provided at "R&I's Basic Methodology for Corporate Credit Ratings", "City Gas" and "R&I's Analytical Approach to Parent and Subsidiary

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Companies". The methodologies are available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating. https://www.r-i.co.jp/en/rating/about/rating_method.html

R&I RATINGS: ISSUER: Saibu Gas Holdings Co., Ltd. (Sec. Code: 9536) Issuer Rating RATING: A+, Affirmed RATING OUTLOOK: Stable

Shelf Registration (Bonds) ISSUE AMOUNT (mn): JPY 50,000 ISSUE PERIOD: From Sep 01, 2020 to Aug 31, 2022 RATING: A+, Affirmed (Preliminary)

Unsec. Str. Bonds No.11 Issue Date Maturity Date Issue Amount (mn) Jan 25, 2012 Jan 25, 2022 JPY 10,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.12 Issue Date Maturity Date Issue Amount (mn) Dec 13, 2013 Dec 13, 2023 JPY 10,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.13 Issue Date Maturity Date Issue Amount (mn) Apr 14, 2015 Apr 14, 2025 JPY 10,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.14 Issue Date Maturity Date Issue Amount (mn) Mar 16, 2017 Mar 16, 2027 JPY 5,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.15 Issue Date Maturity Date Issue Amount (mn) Dec 13, 2018 Dec 13, 2038 JPY 10,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.16 Issue Date Maturity Date Issue Amount (mn) Dec 13, 2018 Dec 13, 2028 JPY 10,000 RATING: A+, Affirmed

Unsec. Str. Bonds No.17 Issue Date Maturity Date Issue Amount (mn) Jul 16, 2020 Jul 13, 2040 JPY 10,000 RATING: A+, Affirmed

Commercial Paper ISSUE LIMIT (mn): JPY 50,000 SUPPORT: Unsecured RATING: a-1, Affirmed

A preliminary rating is assigned when a provisional credit rating is needed for an individual obligation on which final terms have not been determined. A credit rating finally assigned may differ from the preliminary rating depending on, among others, the details of the actual contract of the individual obligation.