Japan to Seize Tepco on Same Terms as 2003 Resona Rescue

Kazuhiko Shimokobe
Kazuhiko Shimokobe, a corporate turnaround lawyer who will be the next chairman of Tepco. Photographer: Kamoshida Koichi/Bloomberg

Japan plans to seize control of its biggest utility on the same terms it applied to a bailout of the nation’s fifth-biggest bank nine years ago.

The government will inject 1 trillion yen ($12 billion) capital into beleaguered Tokyo Electric Power Co. as early as July, taking more than 50 percent of voting rights in return, the Nikkei newspaper said April 28. It will have an option to boost to two-thirds its voting rights in the utility known as Tepco, Nikkei reported.

Trade and Industry Minister Yukio Edano has said Japan will adopt the model used to rescue Resona Holdings Inc. in 2003, when it pumped almost 2 trillion yen into the bank for 70 percent control. Tepco has been on government life-support since last year’s earthquake and tsunami wrecked its Fukushima Dai-Ichi nuclear station, causing reactor meltdowns and forcing about 160,000 people to evacuate from nearby areas.

“This is the last chance to restore Tepco,” Kazuhiko Shimokobe, a corporate turnaround lawyer who will be the utility’s next chairman, told reporters on April 27. “Tepco employees should take to heart that they can’t restore public confidence in the company without reforms.”

Edano has cited the bank bailout as a success, saying in February it’s been “widely agreed that Resona has returned to health.” The lender recorded a profit for the 12 months to March 2005 after cumulative losses of 3.4 trillion yen in the previous three years, and remained profitable throughout the global financial crisis.

Rates to Rise

The government is studying a business plan submitted last week by Tepco and the Nuclear Damage Liability Facilitation Fund. The proposal, which outlines restructuring steps including a 1 trillion yen capital infusion, will be released after Edano approves it, Shimokobe said.

The plan is premised on an increase in electricity rates for households of about 10 percent from July and restart of the Kashiwazaki Kariwa nuclear plant in the year starting April 2013, the Nikkei newspaper reported.

“We need to work on raising electricity rates for households at appropriate timing” to ensure stable power supply, Shimokobe said, without elaborating.

Credit Rating

Approval of the bailout plan would probably prevent a downgrading of Tepco by Japan Credit Rating Agency Ltd., according to BlackRock Inc. Companies need at least one risk assessor to give them a grade above BBB+ to remain in the Nomura Bond Performance Index, which is used by most major Japanese pension funds. Tepco’s sole foothold is JCR, which rates it A.

“I can’t say the chances are zero, but we think it won’t happen” because Japan Credit takes into account outside support for the utility, Kunihide Takeuchi, a Tokyo-based fund manager at BlackRock, said last week.

The extra yield investors demand to own Tepco’s 100 billion yen of notes due May 2013 rather than government debt averaged about 564 basis points this month, according to Japan Securities Dealers Association prices. The spread tightened from a record 964 basis points, or 9.64 percentage points, on Oct. 27, JSDA prices show.

The yield premium was 10 basis points on March 10, 2011, one day before the quake disaster.


Japan’s last working nuclear power reactor is scheduled to shut down for maintenance in about a week, leaving utilities struggling to keep electricity supplies stable without the 48,960 megawatts of capacity previously generated by 54 atomic plants.

The nation is moving closer to restarting two reactors at Kansai Electric Power Co.’s Ohi nuclear station in Fukui prefecture after four ministers approved additional safety measures at the plant and cited the need to ease power shortages as Japan’s summer approaches.

The Ohi reactors would be the first to come back online since Japan adopted so-called nuclear stress tests, computer simulations to assess each plant’s ability to withstand earthquakes or tsunamis and to supply backup power to keep reactor cooling systems running.

Utilities have submitted reports on the first phase of stress tests on 18 reactors to the Nuclear and Industrial Safety Agency, the agency said on its website. The Nuclear Safety Commission has completed assessments only on the two Ohi reactors, according to the NISA website.

It’s unlikely other reactors will restart before summer as the safety commission plans to leave the assessment on other reactors to a new regulatory agency which hasn’t been created yet, Edano said April 20.

Industry Restructuring

Nationalization of Tepco would pave the way for the government to restructure a power industry monopolized by regional utilities, and possibly break up generation and transmission networks to allow more competition.

Shimokobe, who has been heading the compensation fund set up to rescue the utility, agreed to serve as chairman after the government failed to find a business leader willing to run Tepco. Someone inside the company will be promoted to replace President Toshio Nishizawa, Nikkei reported.

The utility will clarify management’s responsibility when it discloses its earnings in May, Nishizawa said on April 27. He declined to comment on details of the business plan.

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