Tepco Shares Decline Today After 65% Advance on Short Covers

Tokyo Electric Power Co., the utility at the center of the worst nuclear crisis in 25 years, fell today after a record 65 percent surge in the past two days, spurred by investors covering short sales.

Tepco, as the utility is known, dropped 2.7 percent to 320 yen at the 3 p.m. close of trading on the Tokyo Stock Exchange after earlier climbing as much as 4.6 percent. The stock rallied 32 percent yesterday and 25 percent on June 14 as the exchange raised the collateral requirement for short sales of Tepco to 50 percent from 30 percent, discouraging short selling by making the trade more expensive.

Tepco trading “has become a money game,” said Tsutomu Yamada, a market analyst at Kabu.com Securities Co. in Tokyo: “As we had a round of people closing out of their short positions, it’s harder for the stock to move much today.”

Japan’s Cabinet approved a disaster compensation bill on June 14 to help Tepco pay reparations. The utility is preparing compensation for victims of the disaster after March’s record earthquake and tsunami wrecked the atomic station, leading to radiation leaks. Financial Services Minister Shozaburo Jimi also said Japan will guarantee bank loans to a third-party organization created to ensure the utility can compensate victims of the accident.

Credit-default swap contracts insuring Tepco debt against non-payment for one year dropped to 1,987 basis points in Tokyo yesterday, the biggest decline in seven weeks, according to data provider CMA. The company has 6.83 trillion yen ($85 billion) of bonds and loans outstanding.

Worst Performer

Tepco has lost 85 percent of its value since March 10, the day before a record earthquake and tsunami hit Japan and caused radiation leaks at the Fukushima Dai-Ichi nuclear plant. The company is the worst-performing stock on the Nikkei 225 (NKY) Stock Average, which has lost 9.8 percent since March 10.

“In the last couple of days, we saw significant short covering driving moves in shares such as Tepco,” said Mattia Ciancaleoni, director of equity sales at Citigroup Global Markets Japan Inc. “It is probably too early to turn complacent as the macro and political headwinds both in Japan, as well as globally, are unlikely to disappear immediately.”

About 5 percent of Tepco’s outstanding shares have been sold short, the most since at least 2006, according to June 13 data compiled by Data Explorers, a New York-based research firm. In a short sale, a trader borrows shares and sells them, trying to profit by repurchasing the stock at a lower price, repaying the loan and pocketing the difference.

To contact the reporters on this story: Lynn Thomasson in Tokyo at lthomasson@bloomberg.net; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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