Bloomberg News

Tepco Rises Record 25% on Short-Selling Clampdown, Guarantee

June 14, 2011

(Adds investor comment in last paragraph.)

June 14 (Bloomberg) -- Tokyo Electric Power Co., battling the worst nuclear crisis since Chernobyl, surged the most in almost four decades after the stock exchange clamped down on short-selling of the shares and the Cabinet approved a bill to help the utility compensate victims of the disaster.

The stock rose 25 percent to 249 yen at the 3 p.m. close of trading in Tokyo, its biggest gain since at least September 1974. The utility known as Tepco has slumped 88 percent since March 10, the day before an earthquake and tsunami crippled its Fukushima Dai-Ichi nuclear plant, erasing about 3.1 trillion yen ($39 billion) in market value.

The Tokyo Stock Exchange raised the collateral requirement for short sales of the utility to 50 percent from 30 percent, discouraging speculators by making the trade more expensive. Financial Services Minister Shozaburo Jimi said today Japan will guarantee bank loans to a third-party organization created to ensure the utility can compensate victims of the accident.

“The tighter regulation will likely prevent investors from short selling Tepco’s shares,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “That would be positive factor as it will likely bring about more buyers than sellers in the market.”

Victim Compensation

Japan’s largest bourse makes changes like the one it did today when the gap between a company’s closing share price and its 25-day moving average exceeds 30 percent and more than 20 percent of margin sales are new, according to the exchange. Today was the second time the exchange has increased the margin requirement for Tepco shares since the earthquake, bourse spokesman Yukari Hozumi said.

Tokyo Electric’s shares also rose after Japan’s Cabinet today approved a disaster compensation bill to help Tepco pay reparations. The utility said it is preparing compensation for victims of the disaster after the record earthquake and tsunami wrecked the atomic station, leading to radiation leaks.

The cost of dismantling the plant may reach 20 trillion yen, and compensation for households in a 20-kilometer evacuation zone may total 630 billion yen over 10 years, according to the Japan Center for Economic Research.

In a short sale, a trader borrows shares and sells them. If the price drops, the trader profits by buying back the stock at a lower price, repaying the loan and pocketing the difference.

“Margin selling had been taking place until just before the announcement and shares were at a low,” said Masatsugu Okeya, a fund manager at Chiba-Gin Asset Management Co. “The regulations proved an easy catalyst for the stock to be bought back.”

--With assistance from Takako Iwatani in Tokyo. Editors: Jason Clenfield, Nick Gentle.

To contact the reporters on this story: Satoshi Kawano in Tokyo at skawano1@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net.


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