Tepco Bond Risk Rises as It Seeks to Avoid Third Straight Loss

Tokyo Electric Power Co. (9501)’s bond risk jumped following a Yomiuri newspaper report that said the operator of the wrecked Fukushima Dai-Ichi nuclear plant will have to rely on rate increases to become profitable if its atomic reactors remain shut.

The cost to insure the debt of the utility against default rose 22.4 basis points in the three days to Aug. 15 to 273.7, the biggest back-to-back increase since June 21, according to data provider CMA. The Markit iTraxx Japan index of default swaps for 50 companies declined 1.8 basis points in the period.

Tepco, as the company is known, faces opposition from Niigata Prefecture Governor Hirohiko Izumida to resume operations at its Kashiwazaki-Kariwa nuclear station in northern Japan, hampering efforts to prevent a third straight year of losses.

The business plan outlined last year by Tepco, which has 29 million customers in metropolitan Tokyo, said restarting Kashiwazaki-Kariwa would result in net income of about 107 billion yen ($1.1 billion) in the year to March 2014. The company also aims to return to the corporate bond market after the middle of the decade, the plan stated.

Tepco faces a deadline to refinance 80 billion yen in debt in October and plans to seek 300 billion yen in new loan commitments in December, President Naomi Hirose told reporters last month after the release of first-quarter results.

Regional Opposition

The Tokyo-based company, Japan’s biggest utility, has no realistic way at the moment to become profitable in 2014 and no prospect of returning to the corporate bond market in 2016, analyst Mana Nakazora said.

“The governor’s opposition has created a big problem for Tepco,” Nakazora, the Tokyo-based chief credit analyst at BNP Paribas SA, said yesterday in a phone interview. “The company’s business plan will need to be revised, but it has yet to be clear when it will come.”

Most of Japan’s 50 nuclear reactors remain shut for safety checks after the country’s earthquake and tsunami in March 2011 caused the meltdown at Fukushima.

Tepco would need to raise power prices by 8.5 percent in January should Kashiwazaki-Kariwa stay offline, the Yomiuri newspaper reported on Aug. 13.

The possible rate increase is one of several scenarios the utility has presented to banks, spokesman Yusuke Kunikage said yesterday by phone, adding that it’s too early to say whether higher rates will be needed.

Japan’s regulator this week approved safety plans for decommissioning the Fukushima nuclear plant, a move that also gives the watchdog authority to step in and direct the operation if procedures are not followed.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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