Bankers urge aid for Tepco

No new loans for stricken utility before bailout, association chief says

by Shigeru Sato and Takako Taniguchi

Bloomberg

The government needs to come to the financial aid of Tokyo Electric Power Co. before banks resume lending to the beleaguered utility, the head of the Japanese Bankers Association said.

“We need to wait until the government clarifies how it will help” Tepco, particularly in the area of compensation for victims of the crisis at the Fukushima No. 1 nuclear plant, Masayuki Oku said in an interview Tuesday. “We would provide financial assistance if the soundness of the company is maintained by a public rescue.”

Oku is also chairman of Sumitomo Mitsui Financial Group Inc., which led a group of banks that lent about ¥2 trillion to Tepco, money that he said the utility will use to finance operations rather than pay for damages. Neither Tepco nor the government has revealed who should compensate citizens and businesses after radiation from the plant forced evacuations and tainted food and seawater.

Tepco’s market value has plunged 86 percent since the March 11 earthquake and tsunami damaged the nuclear plant’s cooling equipment, resulting in a partial meltdown. It faces claims of as much as ¥11 trillion if the crisis lasts two years, and that could lead to nationalization, according to Bank of America Merrill Lynch.

“No one wants to see Tepco go bankrupt,” said Ben Wedmore, a Tokyo-based analyst at MF Global FXA Securities Ltd. One option “may be that Tepco would issue enormous amounts of new shares and the government would then buy most of them. The government can hold them for a while until the price of Tepco shares stabilizes, and then sell them to other investors.”

Engineers and analysts have said the damaged reactors may take three decades to decommission and cost Tepco more than ¥1 trillion.

Tepco shares fell to about ¥300 from about ¥2,000 before the quake. The company has ¥5 trillion in debt, making it the fourth-biggest borrower among members of the Nikkei 225 stock average, according to data compiled by Bloomberg.

The utility is required by law to carry liability insurance of about ¥120 billion. The government also compensates victims if an accident is caused by a natural disaster.

“It is highly possible that the government covers a certain portion of compensation as a measure aimed at securing power supply and avoid any disarray,” Yusuke Ueda, a credit analyst at Merrill, wrote in a March 29 note. Tepco “would be unable to absorb the losses even after a capital reduction and debt-to-equity swap of state-guaranteed debt.”

Power supply shortages could cut industrial output and shrink the economy, Oku said. Tepco’s supplying area — Tokyo and eight surrounding prefectures — covers 40 percent of the country’s gross domestic product and takes about 50 percent of overall lending, he said.

The electricity shortfall and adverse effects from radioactivity contamination may cut at least 1.5 percent, or ¥7 trillion, from GDP in the year ending next March, Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute Inc., said Tuesday.

Sumitomo Mitsui’s banking unit is the sixth-largest shareholder in Tepco, with a 2.2 percent stake. It topped the list of lending to the utility with ¥600 billion, followed by ¥500 billion from Mizuho Corporate Bank Ltd. and ¥300 billion from Bank of Tokyo-Mitsubishi UFJ Ltd., three sources familiar with the agreements said Monday.

Tepco plans to use the funds to cover costs of stabilizing the reactors at the nuclear plant, and expenses for fuels that are burned at thermal power generators to help reduce electricity shortages, Tsunehisa Katsumata, chairman of the utility, told reporters March 30.

Katsumata said his company is short of funds and in talks with the government to deal with the situation, without elaborating.