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Tepco Goes to Government for $12 Billion in Rescue Funds

Tepco Confronts Post-Fukushima Future Dictated By Bureaucrats
The crippled Tokyo Electric Power Co. (Tepco) Fukushima Dai-Ichi nuclear power station is seen through a bus window in Okuma Town, Fukushima Prefecture, Japan. Photographer: David Guttenfelder/Pool via Bloomberg

Tokyo Electric Power Co. requested 1 trillion yen ($12 billion) of public funds to avert collapse, paving the way for the government to take control of what once was the world’s biggest private utility.

The company known as Tepco also asked for 845.9 billion yen in extra aid from a government-backed fund to compensate people affected by the Fukushima disaster, President Toshio Nishizawa said at a news briefing today. The utility may face insolvency if its capital keeps falling, he said.

The government is preparing a Tepco bailout package of as much as 11 trillion yen, the largest in Japan since the rescue of the banking industry in the 1990s, after last year’s quake and tsunami crippled the Fukushima Dai-Ichi nuclear station and forced about 160,000 people to flee their homes. The capital injection, if approved by the government, would effectively nationalize Tepco and lead to a possible reform of Japan’s electricity industry, now monopolized by regional utilities.

“Tepco would become the touchstone of the government’s liberalization of the industry,” Yuji Nishiyama, a Tokyo-based analyst at Credit Suisse Group AG, said today before the announcement. “If the government seriously wants to reform the power industry, it needs to hold two-thirds of Tepco’s voting rights.”

Bailout funds for Tepco will be funneled through the government’s Nuclear Damage Liability Facilitation Fund. Kazuhiko Shimokobe, head of the steering committee of the fund, today told reporters that the government hasn’t decided on how much voting rights it will take in Tepco.

Compensation Claims

Compensation payouts may rise to 2.55 trillion yen, up from a previous estimate of 1.7 trillion yen, Tepco said in a statement today. The company requested the additional compensation aid after a government panel updated guidelines on March 16. The government approved Tepco’s requests for 890.9 billion yen in November and 689.4 billion yen in February.

Credit-default swaps insuring the debt of Tepco against default fell 45.5 basis points to 525 basis points as of 2:36 p.m. in Tokyo, according to prices from Citigroup Inc. They closed little changed yesterday, having dropped 337 basis points this year, according to prices from data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Shares of Tepco rose 0.5 percent to 215 yen at the 3 p.m. close on the Tokyo Stock Exchange. The stock has plunged 90 percent since the day before the quake and tsunami caused the disaster on March 11 last year.

Business Plan

The request for the capital infusion in public funds and the additional state aid is expected to be incorporated into a business plan, including measures to restructure the company, to be drawn up by Tepco and the government-backed fund.

Nationalizing Tepco may portend a breakup of Japan’s 10 regional power monopolies that ring up combined sales of $190 billion a year to produce, transmit and distribute electricity, according to data compiled by Bloomberg. Breaking off Tepco’s transmission business from power generation would end its monopoly in Tokyo and may provide a model for the rest of the country, said Penn Bowers, who tracks utilities at CLSA Asia-Pacific Markets.

Tepco and the nuclear damage fund originally aimed to have the business plan approved by March 31 as they are concerned a delay will cause further downgrades in Tepco’s long-term credit rating, two people familiar with the negotiations said earlier this month.

‘Iron Out Details’

The government and the compensation fund are still “undecided” on Tepco’s new management and that’s one of the major reasons for the delay, Shimokobe said. The utility and the compensation fund may be able to submit the business plan in mid-April, Tepco Managing Director Naomi Hirose told reporters in Tokyo today.

“We are working with the compensation fund to iron out details of the government’s voting rights,” Nishizawa said. “A final decision will be disclosed in a business plan.”

The utility has “basically” accepted a proposal under which the government acquires about half of the voting rights and raises it to more than two-thirds if Tepco fails to make progress in restructuring, the Yomiuri newspaper reported March 14, without saying where it got the information.

Tepco holds an issuer rating of B1 by Moody’s Investors Service Inc. and B+ at Standard & Poor’s.

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