Japan to Help Tepco Pay Nuclear Claims; Banks May Have to Write Off Debt
Japan to Support Tepco Compensation
Tokyo Electric Power Co. via Bloomberg
A handout photograph shows workers inspecting the status of the water level indicator for the No. 1 reactor at Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear power station in Fukushima, Japan, on Tuesday, May 10, 2011. Tokyo Electric Power Co. said fuel rods are fully exposed in the No. 1 reactor at its stricken Fukushima Dai-Ichi nuclear plant, setting back the utility's plan to resolve the crisis.
A handout photograph shows workers inspecting the status of the water level indicator for the No. 1 reactor at Tokyo Electric Power Co.'s Fukushima Dai-Ichi nuclear power station in Fukushima, Japan, on Tuesday, May 10, 2011. Tokyo Electric Power Co. said fuel rods are fully exposed in the No. 1 reactor at its stricken Fukushima Dai-Ichi nuclear plant, setting back the utility's plan to resolve the crisis. Source: Tokyo Electric Power Co. via Bloomberg
May 13 (Bloomberg) -- Noriyuki Shikata, Japan's deputy cabinet secretary for public relations, talks about the country's nuclear crisis. Japan’s government will provide financial aid for Tokyo Electric Power Co. to protect the utility from bankruptcy as it pays compensation to those affected by the worst nuclear disaster in 25 years. Shikata speaks from Tokyo with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
May 13 (Bloomberg) -- Penn Bowers, an analyst at CLSA Asia-Pacific Markets in Tokyo, talks about Japan's nuclear power industry. Japan’s government will provide financial aid for Tokyo Electric Power Co. to protect the utility from bankruptcy as it pays compensation to those affected by the worst nuclear disaster in 25 years. Separately, Chubu Electric Power Co. inserted control rods into the No.4 reactor of its Hamaoka nuclear plant before dawn Friday, to begin its shutdown after a Japanese government request, Kyodo News reported. Bowers speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
Japan will provide aid to Tokyo Electric Power Co. to shield it from bankruptcy while Standard & Poor’s lowered its rating on the company’s debt as it faces a compensation bill for the worst nuclear disaster in 25 years.
Japan will create a body to handle claims against Tepco, as the company is called, and will issue bonds to fund them, according to a statement yesterday. As part of the aid, which may include taxpayers’ funds and purchase of shares in Tepco, Chief Cabinet Secretary Yukio Edano said lenders may be required to write off loans to the company.
Tepco earlier accepted the conditions set by the government, which include unlimited liability on payments for damages from the accident at its Fukushima Dai-Ichi nuclear plant. Aid to Tepco will run to trillions of yen, Edano said.
“The government should make it clear that consumers will have to shoulder the burden,” said Kazutaka Kirishima, economics professor at Josai University near Tokyo. “Whether through increased electricity rates, tax hikes or government bond issues, the public will eventually have to pay.”
Standard & Poor’s Ratings Services lowered to BBB from BBB+ its long-term corporate credit and debt ratings on the company and revised the CreditWatch status on the ratings to developing from negative.
“Tepco’s stand-alone credit profile has significantly weakened since our last rating action on April 1, 2011, and remains under significant downward pressure,” the agency said in a statement.
‘Upper Limit’
While the government plans to help pay compensation, it’s not clear what the “upper limit” of those costs will be, S&P said. “We expect Tepco’s profitability to remain under significant pressure for a very long period,” it said.
Tepco will report full-year earnings May 20.
Bank of America Corp.’s Merrill Lynch in March said Tepco may face claims of as much as 11 trillion yen ($136 billion) if the worst nuclear crisis since Chernobyl lasts for two years.
“The most important thing is that a specific compensation figure be decided,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management Co. While the government is “denying that the measures are to save Tepco, they are effectively saving it.”
Stocks Falls
Japanese stocks fell, dragged down by banks after Edano’s comment that public pressure may force lenders to forgive loans to Tepco. Sumitomo Mitsui Financial Group Inc. declined 3.8 percent, while Mitsubishi UFJ Financial Group Inc. closed 2.8 percent lower and Mizuho Financial Group Inc. fell 3 percent. The Nikkei 225 stock average ended yesterday down 0.7 percent.
Tepco’s shares slumped 5.4 percent to 453 yen. The stock has declined about 79 percent since the March 11 earthquake and tsunami knocked out power and cooling systems at the Fukushima plant, causing radiation leaks and the evacuation of more than 50,000 households. The quake and tsunami left more than 24,000 people dead or missing.
“Our requirement is that the company continues to operate as a listed company and continue to provide a stable supply of power,” Trade Minister Banri Kaieda told reporters after the statement was released. He said Tepco bondholders rights will be maintained.
Ten power companies that operate nuclear stations will be required to pay into the compensation organization being set up by the government, Toshihide Kasutani, director general at the trade ministry, told reporters at a briefing in Tokyo. Electric Power Development Co. will be asked to join the organization after its Oma plant starts operations, he said.
The ten nuclear plants operators are Hokkaido Electric Power Co., Tohoku Electric Power Co., Tepco, Chubu Electric Power Co., Hokuriku Electric Power Co. (9505), Kansai Electric Power Co., Chugoku Electric Power Co., Shikoku Electric Power Co., Kyushu Electric Power Co. and Japan Atomic Power Co.
Under the compensation plan, the government will issue the organization so-called delivery bonds, which can be converted to cash at any time, and provide government guarantees, according to a statement distributed to reporters.
The government hasn’t decided how much in delivery bonds will be issued, Yasufumi Takahashi, a cabinet secretariat official, told reporters at the briefing.
To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
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