Tepco Bond Risk Jump on Election Seen as Investment Opportunity

The jump in Tokyo Electric Power Co. Holdings Inc.’s bond risk after the election victory of a gubernatorial candidate opposed to the restart of the utility’s Kashiwazaki Kariwa nuclear plant is overdone and represents an investment opportunity, according to SMBC Nikko Securities Inc. and BNP Paribas SA.

The cost to insure Tepco debt against nonpayment rose 3.5 basis points to 92 on Monday, the highest since February, according to credit-default swap data from CMA. That followed the victory of Ryuichi Yoneyama, who said on Sunday he can’t approve the restart of the seven-reactor nuclear facility in Niigata prefecture under its current status, according to Jiji Press.

Governor Yoneyama’s caution about restarting the plant is in line with the stance of his predecessor Hirohiko Izumida, so it doesn’t affect Tepco’s credit quality, according to Mana Nakazora, the chief credit analyst at BNP Paribas in Tokyo. More important for the utility is the question of how much the government will help pay for decommissioning its Fukushima nuclear plant, and policy makers will probably make a ruling within this year that’s favorable for the company, said Yutaka Ban, the chief credit analyst at SMBC Nikko.

“We’re recommending that investors take on Tepco credit risk,” Ban said on Tuesday. “We’ll see a proposal for the Fukushima No. 1 reactor within the year, and that will lead to a tightening in its credit premium.”

Tepco President Naomi Hirose said after meeting with a Ministry of Economy, Trade and Industry commission earlier this month that he requested “institutional measures” to avoid the possibility of the utility becoming insolvent due to the Fukushima decommissioning cost. The company’s shares rose 1.6 percent on Tuesday after plunging 7.9 percent the previous day.

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