Bloomberg News

Tepco Falls Most on Record as Bankruptcy Concern Resurfaces

June 06, 2011

(Updates with default swaps in second paragraph.)

June 6 (Bloomberg) -- Tokyo Electric Power Co. shares fell the most on record after the head of Japan’s biggest stock exchange said the utility should follow the same route as Japan Airlines Co. in 2010 and file for bankruptcy protection.

The owner of the crippled Fukushima Dai-Ichi nuclear plant plunged as much as 28 percent to 206 yen, the most since at least September 1974, and was the biggest decliner on the MSCI Asia Pacific Index. The cost of protecting the debt of the utility known as Tepco traded at a record 1,150 basis points today, Royal Bank of Scotland Group Plc prices show.

Tokyo Stock Exchange President Atsushi Saito said the utility needs to be restructured, according to the Asahi newspaper. His comments echo those of Shigeaki Koga -- an official in the Ministry of International Trade and Industry, which oversees the nuclear power industry. Koga said in a 14- page memo on May 11 that Tepco is unable to pay compensation for the nuclear disaster alone and a company that can’t meet its financial obligations should file for protection.

“There’s so much uncertainty surrounding what will happen with the utility that it’s impossible to analyze,” said Naoteru Teraoka, general manager at Tokyo-based Chuo Mitsui Asset Management Co., which oversees about $28 billion. “The stock moves whenever anybody opens their mouth. Bottom line: this is a bad story.”

Compensation Estimate

Tepco has slumped 90 percent, erasing about 3.1 trillion yen ($39 billion) in market value, since the March 11 earthquake and tsunami triggered the worst nuclear crisis in 25 years. The cost of dismantling the Fukushima plant may reach 20 trillion yen, and compensation for households in the 20-kilometer evacuation zone may total 630 billion yen over 10 years, according to the Japan Center for Economic Research.

“The government can’t decide on a compensation scheme and Saito’s comments remind investors of what happened with Japan Airlines,” said Tsuyoshi Kawada, a senior strategist at SMBC Nikko Securities Inc. “There’s concern that many of the utilities will have to raise capital and uncertainty about their bonds held by the banks.”

Japanese utilities, led by Kansai Electric Power Co., plan to sell at least 690 billion yen in bonds this fiscal year, in part to fund efforts to fortify atomic plants against earthquakes and tsunamis.

Tepco’s Fukushima Dai-Ichi nuclear power station suffered three reactor meltdowns after the earthquake and tsunami knocked out power and backup generators, crippling its cooling systems. The disaster displaced 50,000 households in the evacuation zone around the plant because of radiation leakages into the air, soil and sea.

Radiation Levels

Soil samples in some areas outside the exclusion zone measured more than 1.48 million becquerels a square meter, the standard used for evacuating residents after the Chernobyl accident, Tomio Kawata, a fellow at the Nuclear Waste Management Organization of Japan, said in a research report published May 24 and given to the government.

Tepco on May 20 posted a full-year loss of 1.25 trillion yen, the biggest on record for a non-financial company in Japan. The company said it will sell 600 billion in assets and book a 1.1 trillion yen charge for the disaster, which cost president Masataka Shimizu his job.

Last week, the utility had its long-term credit rating cut to junk status by Standard & Poor’s Ratings Services. The utility may post a full-year net loss of about 570 billion yen on a parent basis, the Tokyo Shimbun reported today, citing an internal document from the company. Tepco said it wasn’t the source of the newspaper report.

Default Swaps

On May 23, the cost of protecting Tepco’s debt from default jumped to 774 basis points, exceeding the 577 point record set by BP Plc last year following the Gulf of Mexico oil spill.

Five-year credit default swaps protecting Tepco’s debt from default surged 709.5 basis points since March 10 to 750 basis points on June 3, according to data provider CMA, which is owned by CME Group Inc. and compiles price quotes by dealers in the privately negotiated market.

Tepco will go bankrupt without government backing, Hisayoshi Nogawa, a structured credit strategist at BNP Paribas Securities Japan Ltd., said May 23.

Tepco shares closed at 207 yen in Tokyo trading. Kansai Electric, Japan’s second-largest utility, also plunged after Mitsubishi UFJ Morgan Stanley Securities Co. cut its target price to 1,350 yen from 2,150 yen. The utility fell 8.9 percent to 1,202 yen.

--With assistance from Katrina Nicholas in Singapore and Yusuke Miyazawa in Tokyo. Editors: Amit Prakash, Peter Langan

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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