Bloomberg News

Tepco Shares Fall on Mainichi Report of Government Takeover

December 08, 2011

(Updates with Kyodo News report in second paragraph.)

Dec. 8 (Bloomberg) -- Tokyo Electric Power Co. fell more than 10 percent after the Mainichi newspaper said the company will be taken over by the government after the Fukushima nuclear disaster brought it close to collapse.

The government’s Nuclear Damage Liability Facilitation Fund may buy preferred shares worth at least 1 trillion yen ($12.9 billion) from the utility by next summer, the Mainichi said, without saying where it obtained the information. The Sankei newspaper reported the government may inject 1.5 trillion of public funds, while Kyodo News reported Tepco may seek 3 trillion yen, including public funds and loans, during the four years from April.

The company known as Tepco fell 11 percent to 244 yen in Tokyo. Tepco is down 88 percent since the March 11 earthquake and tsunami wrecked its Fukushima Dai-Ichi atomic plant, causing the worst nuclear disaster since Chernobyl in 1986.

“The government has only two choices to avert Tepco’s insolvency: injecting capital or raising electricity rates,” said Tomohiro Jikihara, an analyst at JPMorgan Chase & Co. in Tokyo. “A capital injection is only a temporary option. Without a hike in electricity prices, Tepco will keep posting losses and eventually use up the injected capital.”

Tepco said in a statement there’s been no decision on a possible nationalization. It’s “too early” to discuss a government takeover, Chief Cabinet Secretary Osamu Fujimura said today in Tokyo.

Providing Support

The government, which agreed to provide about 900 billion yen to support Tepco in November, is leaning toward buying shares because it’s becoming likely liabilities will exceed its assets, a situation that may result in the company seeking bankruptcy protection, the Mainichi report said. The preferred stock will be convertible into common shares, the report said.

Officials want to keep the company running to maintain stable power supplies, the report said. Tepco wants to remain a private entity and isn’t planning to seek a capital injection, President Toshio Nishizawa said on Nov. 4.

Yukio Edano, minister for trade and industry, has said a court-led bankruptcy must be avoided as it would give preferential claims to bondholders and other creditors, not those directly affected by the disaster.

Tepco faces claims from as many as 1.5 million people for damages, a government panel said yesterday. The company has reported losses of 1.8 trillion yen and may have to pay compensation of 4.5 trillion yen in the first two years of the crisis, according to a government estimate.

Tepco is forecasting a loss of 600 billion yen in the year to March 31, which may push it into negative net worth, the Mainichi said. Most of Tepco’s management will be replaced as part of the government’s plan, the report said.

The government has decided to increase the amount of loan guarantees for its fund to support compensation claims to 5 trillion yen from 2 trillion yen, the Yomiuri newspaper said today. Another 5 trillion yen has been budgeted for issuing special bonds to the fund that can be used to raise cash for damage claims.

--With assistance from Fukashi Maruta in Tokyo. Editor: Aaron Sheldrick

To contact the reporters on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net; Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net


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