Japan should develop a plan to provide financial support for Tokyo Electric Power Co. before banks including Sumitomo Mitsui Financial Group Inc. (8316) resume lending to the owner of the crippled nuclear plant, the nation’s banking lobby said.
“We need to wait until the government clarifies how it will help Tokyo Electric,” particularly in the area of compensation for victims of the nuclear accident, Masayuki Oku, head of the Japanese Bankers Association, said in an interview in Tokyo yesterday. “We would provide financial assistance if the soundness of the company is maintained by a public rescue.
Oku is also chairman of Sumitomo Mitsui, which led a group of Japanese banks that lent about 2 trillion yen ($24 billion) to Tokyo Electric, money that he said the utility will use to finance operations rather than to pay for damages. Neither Tepco, as the company is known, nor the government has revealed who should compensate citizens and businesses after radiation leaked from the plant forced evacuations and tainted food and seawater.
The utility’s market value has plunged 86 percent since a March 11 earthquake and tsunami damaged the nuclear plant’s cooling equipment, resulting in a partial meltdown. Tokyo-based Tepco faces claims of as much as 11 trillion yen if the crisis lasts two years, and that could lead to nationalization, according to Bank of America Corp.
“No one wants to see Tepco to 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 stabilize, and then sell them to other investors.”
Faces Claims
The utility has been battling to stop the radiation leaks and control damaged reactors at the Fukushima Dai-Ichi station 220 kilometers (137 miles) north of Tokyo. Engineers and analysts have said damaged reactors may take three decades to decommission and cost Tepco more than 1 trillion yen.
Tokyo Electric fell 15 percent to 306 yen at 9:36 a.m. local time, reducing its market value to 486.9 billion yen. The company has 5 trillion yen of debt, making it the fourth-biggest borrower among members of the Nikkei 225 Stock Average, according to data compiled by Bloomberg News.
Under Japanese law on nuclear damages, the utility is required to carry liability insurance of about 120 billion yen. The government also compensates victims if the accident is caused by a natural disaster.
Can’t Absorb Losses
“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 his March 29 note. “Tokyo Electric 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 yen, from Japan’s GDP in the year ending March 2012, Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute Inc., said by telephone yesterday.
Loans to Tepco
Sumitomo Mitsui’s banking unit is the sixth-largest shareholder in Tepco, with a 2.2 percent stake, according to Bloomberg data. It topped the list of lending to the utility with 600 billion yen, followed by 500 billion yen from Mizuho Corporate Bank Ltd. and 300 billion yen from Bank of Tokyo- Mitsubishi UFJ Ltd., three people familiar with the agreements said on April 4.
Tepco plans to use the funds to cover costs of stabilizing reactors at the nuclear plant, and expenses for fuels that are burned at thermal power generators to help reduce electricity supply shortages, Tsunehisa Katsumata, chairman of the utility, told reporters on March 30.
Katsumata said his company is short of funds and in talks with Japan’s government to deal with the situation, without elaborating. The Bank of Japan decided not to exclude Tokyo Electric’s debt from eligibility for a corporate-bond auction scheduled for today even after the company’s credit rating was lowered, two people with knowledge of the matter said. Tepco was cut to BBB+ from A+ by Standard & Poor’s on April 1.
The BOJ said on Oct. 28 it would buy bonds rated BBB or higher with a remaining maturity of between one and two years as part of a plan to boost liquidity and stimulate the economy.