Bankers return favour with loan for Tepco
By Michiyo Nakamoto, Jonathan Soble and Henny Sender in Tokyo
Published: March 24 2011 20:01 | Last updated: March 24 2011 20:01
Bankers at Sumitomo Mitsui were returning a 14-year-old favour to Tokyo Electric Power when they pulled together a consortium this week to offer Y2,000bn in emergency loans to the utility at the centre of Japan’s nuclear crisis.
When the bank faced liquidity problems during the Asian financial crisis in 1997, Tepco, a loyal customer that had a top-notch credit rating, raised about $2bn at low rates from western banks, according to people familiar with the matter. It promptly put the cash on deposit at Sumitomo Mitsui, helping the bank through the crisis.
EDITOR’S CHOICE
In depth: Japan earthquake - Mar-22
Opinion: Japan’s rainy day fund - Mar-24
Japan faces insurance dilemma - Mar-24
Few companies might be expected to survive after playing such a central role in a disaster on the scale of this month’s nuclear accident at Tepco’s Fukushima Daiichi nuclear plant in north-eastern Japan. The accident has leaked radiation over hundreds of kilometres and contaminated the food chain and water supply. It is expected to result in large compensation claims.
But with the backing of the country’s largest banks and the government, along with its own substantial financial resources, Tepco looks likely to emerge battered but largely intact, analysts, bankers and government officials say.
“There is no possibility that Tepco as a company providing electricity will disappear,” says Tadashi Maeda, director-general of the energy and natural resources finance department at the state-owned Japan Bank for International Co-operation. Mr Maeda is also a special adviser to the cabinet.
One of the bankers involved in the consortium, which includes Mitsubishi UFJ and Mizuho, that agreed on Wednesday to provide Tepco with up to Y2,000bn ($24.7bn) in emergency loans concurs. “Not only will it not fail, it is a company that cannot be allowed to fail.”
Tepco faces substantial costs: for cleaning up the wrecked and contaminated power station, replacing lost generating power and compensating residents and businesses affected by the radiation leakage, which has travelled as far as Tokyo more than 200km away.
Its profits are likely to suffer for years, a prospect that has knocked 60 per cent off its share price since the March 11 earthquake that led to the nuclear emergency. While it is unclear how much compensation it will have to pay, a company official says it is “certain” to exceed the Y120bn for which it is insured under government regulations.
Above that amount, costs can shift to taxpayers in the case of “an extraordinary natural disaster”, but the law is vague and in practice dividing the burden will be politically fraught. “First, we will have Tepco take responsibility. But if the company cannot compensate people adequately, the government will guarantee the claims,” Yukio Edano, chief cabinet secretary, said this week.
Some of Tepco’s other costs will be big too, for example the bill to replace the lost generating capacity from Fukushima. When another of its nuclear stations was knocked off-line by an earthquake in July 2007, its fuel bill ran Y420bn over budget buying other fuels.
Clean-up and decommissioning will also be expensive, but Tepco here will be able to draw on Y510bn of reserves that it has set aside for shutting down power plants in the future.
Mana Nakazora, chief credit analyst at BNP Paribas in Tokyo, says there are “many investors who ask whether Tepco will go bankrupt, especially foreign investors”. But she believes Tepco will be protected by its near-monopoly business in the Tokyo area, which generates substantial cash flows.
In the financial year to last March, Tepco pulled in Y988bn in cash from operations, and ended the year with net cash of Y153bn against total interest-bearing debt of Y7,524bn. Net assets stood at Y2,516bn.
Tepco must redeem bonds worth about Y570bn this year, but Ms Nakazora estimates that even after redemption costs it could shoulder up to Y3,690bn in additional expenses. Bankers say they could also add more emergency loans if Tepco is shut out of the bond market.
Tepco may look different after the crisis: top managers are likely to lose their jobs and there will be debate on how it is regulated. But one government official dismissed suggestions it could lose its nuclear licences, forcing the state to take over its plants. A government official said that was unlikely while it has little idea of how to manage such an operation.
Copyright The Financial Times Limited 2011.
Comments