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Tepco Value Falls $24 Billion as Utility Faces Atomic Crisis

The Fukushima Dai-Ichi Nuclear Power Plant
The Fukushima Dai-Ichi nuclear power plant in Fukushima Prefecture, seen on March 14. Source: Kyodo

Tokyo Electric Power Co., the world’s most indebted utility, has lost 1.93 trillion yen ($24 billion) in market value as creditors snap up contracts to protect against default following the worst nuclear disaster since Chernobyl.

Shares in Tokyo Electric, or Tepco, have plunged 57 percent in three days, as it battles to prevent a nuclear catastrophe at its earthquake-damaged Fukushima Dai-Ichi plant. The cost of insuring the company’s debt against default has surged almost nine-fold since the March 11 earthquake on concern it will be harder to service net borrowings of $88 billion, more than any utility worldwide, according to data compiled by Bloomberg.

“There is no bottom in sight,” said Satoshi Yuzaki, Tokyo-based head of the market information department at Takagi Securities Co. “Nobody knows when or if the plants in Fukushima will ever restart. There’s a possibility that they will have to deal with liability issues as well.”

Tepco’s nuclear generating capacity will be held back for years, forcing the company to build new stations and generate power from more costly fossil fuel plants, Moody’s Investors Service Ltd. said in a note to investors. More than 30 percent of the power supplied to the utility’s 29 million customers in 2009 came from its 17 nuclear reactors. Ten of those are at two plants in Fukushima, where the company is battling to keep reactors from melting down amid fires and aftershocks.

Shares Slump

Tepco fell by the daily 25 percent limit to 921 yen in Tokyo, and no trades took place until the close as sell orders outweighed those to buy by a factor of five to one.

“The price to book ratio is around 0.6,” Yuzaki said by telephone today. “If this was a normal time, the current level would already be considered a low price, but investors are continuing to sell. It’s psychological.”

A fire and aftershocks struck the crippled power station today, as officials battling to prevent a nuclear meltdown said fuel rods at two reactors may have been damaged.

The cost of insuring debt sold by Tepco for five years fell from yesterday’s record 387 basis points to 300 today, according to CMA. That compares with the 577 basis point high reached by credit-default swaps on 5-year debt for BP Plc at the height of the Gulf of Mexico oil spill disaster last year.

A basis point on a credit-default swap protecting 1 billion yen of debt for five years is equivalent to 100,000 yen. Contracts on Japanese government debt declined 6 basis points to 108.

Credit-Default Swaps

The credit-default swaps fell 34 basis points to 351 basis points as of 1:08 p.m. in Singapore, according to CMA. The contracts closed at 40.5 basis points on March 11, before financial markets reacted to the magnitude-9 earthquake’s impact later that afternoon, CMA prices show. The temblor was Japan’s strongest on record.

The disaster unfolding at the plant 220 kilometers (135 miles) north of Tokyo now ranks six on a seven-step international scale for nuclear accidents, according to Andre-Claude Lacoste, head of France’s Autorite de Surete Nucleaire. The 1986 accident at Chernobyl was rated a seven because of widespread health and environmental effects, while Three Mile Island in the U.S. in 1979 was a five due to severe damage to the reactor core, according to the IAEA.

The disaster at Fukushima isn’t the first quake-related accident for Tepco. A 6.8 magnitude temblor in July 2007 caused a fire and radiation leaks that shut down the seven-reactor Kashiwazaki-Kariwa nuclear plant, the world’s biggest. It took almost two years to restart and three reactors remained shut down at the time of last week’s quake.

2007 Disaster

The 2007 earthquake resulted in Tepco reporting a net loss in both 2007 and 2008, Moody’s said. Profits in 2009 were still about half of those earned in fiscal year 2006, the ratings company said.

“This latest incident and the previous Chuetsu-Oki earthquake indicate that the business risk of operating nuclear power plants in Japan is higher than previously contemplated,” Moody’s analysts including Kenji Okamoto said in a note, putting the company on a review for a possible downgrade.

Engineers today restored water coolant levels at reactors No. 1 and No. 3 while the containment chamber of the No. 2 unit may be damaged after a blast. The building that houses the No. 4 reactor has two holes in it and water in the spent fuel pool may be boiling, Hidehiko Nishiyama, deputy director-general of Japan’s Nuclear and Industrial Safety Agency, said in Tokyo.

Radiation levels at the No. 4 reactor hampered efforts to confirm a fire that broke out this morning had been extinguished, a day after a similar blaze at the same structure.

Under law, the utility is required to carry liability insurance of about 120 billion yen ($1.5 billion), Tokyo-based Credit Suisse analyst Yuji Nishiyama said in a telephone interview. If costs spiral above this, Tokyo Electric is likely to receive government assistance, he said. The company also faces public outrage and will need to compensate local communities for the damage caused, he said.

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