UK | Banks insist no respite for Tepco

Posted on July 8, 2011

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UK | FINANCIAL TIMES | July 8, 2011 9:07 pm

Japanese banks are adamant they will not waive loans to Tokyo Electric Power, in spite of suggestions a rescue plan for the utility at the centre of the Fukushima Daiichi nuclear crisis could hinge on such a move, according to the head of the Japanese Bankers’ Association.

“We are not thinking about [waiving loans to Tepco],” Katsunori Nagayasu, chairman of the Bankers’ Association told the Financial Times.

“I consider a debt waiver to be inconceivable,” he said.

Mr Nagayasu’s comments highlight concerns about the implication of Tepco’s fate for the health of Japan’s largest banks and insurance companies, which have provided the utility with more than Y3,400bn ($42bn) in loans and are believed to be large holders of its Y4,425bn in outstanding bonds.

The government has suggested that bank willingness to forgive some loans to Tepco could be a condition for state financial support to the utility under a scheme now being discussed by the Diet, Japan’s parliament.

Diet members on Friday began deliberations on legislation that would create a new government-guaranteed body to be funded by the state and Japanese power companies. The body would provide financial support to Tepco and to any other future member utility that suffered a nuclear accident.

Passage of the legislation is likely to be crucial to ensuring the survival of Tepco, which faces thousands of billions of yen in potential compensation claims stemming from the accident at its Fukushima Daiichi nuclear power plant.

The suggestion that banks could be forced to forgive some of their loans to Tepco triggered outrage within the banking community and also raised fears that Tepco’s bondholders might also be forced to take a haircut.

Japan’s largest banks extended Y1,900bn in fresh loans to Tepco in the immediate aftermath of the March 11 earthquake and tsunami, which crippled the Fukushima Daiichi plant and triggered the world’s worst nuclear crisis in 25 years.

But Mr Nagayasu insisted banks had no intention of providing further loans to Tepco or buying new Tepco bonds unless they were guaranteed by the state.

Under the proposed legislation, the government will effectively guarantee further lending to Tepco as well as the utility’s bonds, he said, “so, we are praying that the law passes”.

Banks, bondholders and Tepco shareholders could yet come under pressure to take a bigger share of the burden of the nuclear crisis, which has forced the indefinite evacuation of tens of thousands of people.

But Mr Nagayasu warned that forcing banks to waive their loans would “destabilise the financial system considerably”.

He said passage of the proposed legislation through the Diet would bring an end to debate on any debt waivers as the scheme was designed to prevent the utility going bankrupt.

“The government is saying it will not allow Tepco to become insolvent … [and] there is no possibility of waiving loans to a borrower which is not insolvent,” he said.

Mr Nagayasu said he was not worried about the possibility of the opposition derailing the plan, since he did not believe anyone in the opposition “would come up with the idea of forcing the banks to waive their loans”.

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Posted in: UK