Japan May Own 76% of Tepco After Converting Non-Voting Stock

Japan’s government may own as much as 76 percent of Tokyo Electric Power Co., operator of the crippled Fukushima nuclear plant, after converting all shares to be awarded under a 1 trillion yen ($12.6 billion) bailout.

The utility will issue 1.6 billion convertible preferred shares with voting rights and 340 million of the same type of equity without voting rights, the company known as Tepco said in a statement today. The plan, which needs approval by shareholders in June, will initially give a state-backed compensation fund a 50.11 percent stake. That may rise to 75.84 percent once the non-voting stock is converted to preferred shares with voting rights.

Tepco has been on government support since the March 11, 2011 quake and tsunami wrecked the Fukushima Dai-Ichi nuclear station, causing reactor meltdowns and forcing about 160,000 people to evacuate from towns around the plant. The bailout plan is the nation’s largest since the rescue of Japan’s banking industry in the 1990s.

Voting shares will be valued at 320 billion yen and the non-voting convertible stock at 680 billion, according to the statement.

Shares in Tepco have plunged more than 92 percent since the day before last year’s earthquake. The stock rose 3.2 percent to 162 yen on the Tokyo Stock Exchange today. The statement was issued after the market close.

Rebuilding Tepco

Under a 10-year business plan approved this month by Trade and Industry Minister Yukio Edano, the government stake may rise to more than two-thirds if Tepco fails to meet goals that include cost cuts and compensation payments. The government may lower its voting rights to below 50 percent if Tepco meets restructuring benchmarks, according to the plan.

If the restructuring of the utility goes according to plan, the compensation fund may convert all preferred shares to common stock and sell them in the market “at an appropriate time.” The statement also leaves open the option to sell the equity in some form back to Tepco to retrieve the tax money used to rescue the company.

The bailout fund’s voting rights may reach as high as 95.44 percent if all the preferred shares are converted to common stock, with the share dilution ratio of 2,092.2 percent, the statement said.

Profit Plan

Under the business revival plan, the utility aims for an unconsolidated profit of 106.7 billion yen in the year ending March 2014, based on an electricity rate increase and the gradual restart of its Kashiwazaki Kariwa nuclear station, the world’s biggest, after April 2013. Tepco estimates that restarting one Kashiwazaki Kariwa reactor will cut its annual costs by about 78 billion yen.

The nationalization of Tepco paves the way for the government to restructure the power industry monopolized by regional utilities and possibly break up generation and transmission networks to allow greater competition.

The government has set aside 9 trillion yen as part of the bailout of Tepco and to pay compensation and cleanup costs related to radiation leaks from the Fukushima plant.

The government’s new management will officially replace Tepco’s current chairman and president after the meeting of shareholders in June.

Corporate turnaround lawyer Kazuhiko Shimokobe, who leads the government-backed Nuclear Damage Liability Facilitation Fund, will replace Chairman Tsunehisa Katsumata, 72. Naomi Hirose, 59, will be promoted to take President Toshio Nishizawa’s job, the company said in a statement May 8.

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