Bloomberg News

Tepco to Sell 2.4 Trillion Yen Bonds to Pay Debt Due by 2021

October 04, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 4 (Bloomberg) -- Tokyo Electric Power Co. plans to raise as much as 2.4 trillion yen ($31 billion) selling bonds to repay debt securities due by March 2021, according to a government panel investigating the utility’s finances.

Tepco, as the company is called, aims to raise the funds to cover bonds maturing after April in either 2015 or 2016 through the year ending March 2021, the panel said in a report released yesterday.

The utility hasn’t been able to sell bonds since the March 11 earthquake and tsunami knocked out its Fukushima Dai-Ichi plant, causing the worst nuclear crisis in 25 years and exposing the company to at least 5.7 trillion yen in compensation payments and decommissioning costs. The company may have a funding shortfall of 8.6 trillion yen during the next ten years because of higher costs to generate power from fossil fuel, the panel said.

“Investors won’t buy Tepco’s bond unless the utility clearly shows it can survive on its own without strong support from the government,” said Toshihiro Uomoto, chief credit analyst at Nomura Securities Co.

Tepco had 4.7 trillion yen of domestic and foreign currency bonds outstanding at the end of July, the report said.

“We will issue new bonds after improving our finances through restructuring and resolving the nuclear accident,” Tepco spokesman Naoyuki Matsumoto said by phone today. He declined to comment on the details of bond sales.

Emergency Loan

The company may use a 2 trillion yen emergency loan it received from banks in April to cover payments on bonds due before the end of March 2015, Matsumoto said. Tepco plans to repay the loan by March 2021, though the company may ask banks to roll over payment depending on its finances, according to the report. Matsumoto declined to comment on terms of the emergency loan.

For bonds maturing after April 2015 the company plans to sell new securities to cover repayments, according to the oversight panel. Tepco has 2.4 trillion yen of bonds due in the five years after April 2015, the report said.

Tepco plans to ask banks to maintain the loan balance of 2 trillion yen that it had at end of March for 10 years, according to the report. The company has made a commitment to creditors not to seek interest-rate relief or debt forgiveness.

Disaster Costs

The panel headed by Kazuhiko Shimokobe, a bankruptcy lawyer, provided the first official estimate of the costs of the disaster after scouring Tepco’s books for almost four months.

Tepco may have to pay 4.5 trillion yen by March 2013 in compensation to those affected by the disaster, according to the report. The company had paid 117.2 billion yen in provisional compensation by Sept. 7, it said.

Decommissioning four damaged reactors at the plant, located about 220 kilometers (137 miles) north of Tokyo, will cost at least 1.15 trillion yen.

Tepco can raise 707.4 billion yen through asset sales within three years to generate funds for compensation payments, the panel said. The report estimates the company can raise 247.2 billion yen by selling properties, while it has 330.1 billion yen of shares in other listed companies to sell.

Tepco can also reap 130.1 billion yen selling affiliated companies. Earlier, the utility said it would sell assets worth 600 billion yen.

Government Support

The panel’s findings will form the basis of a plan to be drafted by Tepco and the Nuclear Damage Compensation Facilitation Corp., which was established to cover payments to those affected by the disaster.

“It will pave the way for financing help from the compensation body once Tepco’s special management plan gets approved and the company follows up on restructuring measures and asset sales included in the report,” Shimokobe said yesterday when releasing the report.

A funding shortages during the next decade arises if none of its nuclear power plants come back online and electricity prices are not increased, the report said.

As well as Fukushima Dai-Ichi, the company’s nearby Fukushima Dai-Ni plant was shut down after the quake and five out of seven reactors at its Kashiwazaki Kariwa plant on the other coast of Japan are idled.

The compensation body was created by an act of parliament in August with 2 trillion yen of funds. The government is considering increasing the amount to 5 trillion yen, according to the panel’s report.

Trade and industry minister Yukio Edano will need to approve the restructuring plan for Tepco after it’s compiled by late October. It will also set the stage for the government to beef up Tepco’s finances by issuing government bonds the company can immediately redeem or through capital injections.

“The report made a lot of suggestions including capital injections and electricity price increases to keep Tepco running,” said Akihito Murata, a Tokyo-based credit analyst at Deutsche Bank AG. “But if Tepco issues bonds with terms the same as those before the crisis, the market would have to say ‘No.’”

--With assistance from Emi Urabe in Tokyo. Editors: Aaron Sheldrick, Peter Langan

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Teo Chian Wei at cwteo@bloomberg.net


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