Tokyo Electric claims could top $130 billion on Japan

Reuters News
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Posted: Mar 30, 2011 11:25 PM
Tokyo Electric claims could top $130 billion on Japan

By James Topham

TOKYO (Reuters) - Tokyo Electric Power Co could face compensation claims of topping $130 billion if Japan's worst nuclear crisis drags on, an analyst estimated on Thursday, further fuelling expectations Japan's government will step in to save Asia's largest utility.

Investor concern about the future of Tokyo Electric grew on Wednesday after its president, Masataka Shimizu was admitted to hospital and the company said that 2 trillion yen ($24 billion) in emergency loans from Japan's major banks would not cover its mounting costs, making it more likely it will seek taxpayer assistance.

"I think in the current situation the government has very few options left," said Ravi Krishnaswamy, Asia-Pacific vice president of Frost & Sullivan's Energy and Power Systems Practice in Singapore.

"Nationalization isn't a good move for the stakeholders but at the end of the day if the government steps in then at least creditors know their liabilities will be met," he added.

Liabilities for compensation claims alone could be up to 11 trillion yen ($133 billion) -- nearly four times its equity -- if Japan's worst nuclear crisis drags on for two years, an analyst at Bank of America Merrill Lynch wrote in a report.

Shares in TEPCO jumped on Thursday, rebounding from three straight sessions when the stock has hit its limit-lows and defying worries that compensation claims resulting from Japan's worst nuclear disaster could wipe out shareholders.

TEPCO's shares jumped 8.6 percent to 506 yen Thursday, although the stock is still down by three-quarters since the disaster.

Sources said a buy order for around 40 million shares adding up to about of 2.5 percent of all outstanding TEPCO shares was detected at the end of Wednesday's session, but they were unable to confirm who placed it.

Bank of America-Merrill Lynch said shareholders were very likely to take a big hit.

Only by a rapid resolution of the crisis at the Fukushima Daichi nuclear complex, triggered by the March 11 earthquake and tsunami would keep costs down, the analyst, Yusuke Ueda, wrote.

If the situation can be turned around within the next two months costs may be less than 1 trillion yen, rising to 3 trillion yen if it drags on for six months, he said.

Compensation and rebuilding claims are expected to be substantial following the evacuation of 70,000 people and government bans on sales of vegetables and milk from areas around the plant.

The U.N. nuclear watchdog, the International Atomic Energy Agency, Thursday suggested Japan consider widening an evacuation zone around a stricken nuclear plant, an escalation that would force more households and businesses to move.

Japan has so far ordered those within a 20 km radius from the plant to leave and is encouraging those living in a 20-30 km ring to do the same, and if they don't, to stay inside.

Some or all of the claims, however, may be picked up by the government in order to limit the liability imposed on TEPCO, a move that it may seek rather than outright nationalization.

"In any event, we think it is very unlikely that TEPCO will end up in legal bankruptcy, considering its importance as a provider of a key part of the infrastructure, electricity," Ueda wrote.

TEPCO has around $91 billion in debt including some $64 billion in bonds, but which excludes about $24 billion recently secured in loans from domestic lenders. At the end of December, TEPCO had equity of about $35 billion, its accounts show.

The cost of insuring Tokyo Electric Power's debt against default fell sharply on Wednesday, with its five-year credit default swaps down 72 basis points from Tuesday's closing levels to 320 bps, according to Markit. The CDS hit record highs of 475 bps earlier this week.

TEPCO Chairman Tsunehisa Katsumata said on Wednesday the company will discuss with the government how to ensure the adequate funding to get through a disaster that has caused radiation leaks, rolling power blackouts and the evacuations.

($1=82.875 Japanese Yen)

(Additional reporting by Taiga Uranaka and Rachel Armstrong; Writing by Tim Kelly; Editing by Rodney Joyce and Lincoln Feast)