USA | Bill Unsettles Tepco Investors – Measure to Bolster Utility Envisions Holders’ Sharing Cost Burden; Stock Drops 16%

Posted on July 27, 2011

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USA | WALL STREET JOURNAL | 27 July 2011

TOKYO—Shares of Tokyo Electric Power Co. plummeted Wednesday as a revised bill aimed at keeping the embattled utility solvent reignited worries that shareholders will take a hit.

TEPCO

TEPCO

The bill, which was approved by a Japanese parliamentary committee, would create a state-backed entity to financially support the utility as it owes trillions of yen in compensation to those affected by the nuclear accident at its Fukushima Daiichi plant in March.

While a law would soon be put in place to aid Tepco, investors apparently took note of a clause in the bill that sought cooperation from “shareholders and other stakeholders” in helping the utility cover the compensation costs.

The bill was originally proposed by the government in mid-June, but revisions have since been made to it to ensure support from both the ruling and opposition parties for passage through both houses of parliament.

Among the changes, the statement now has a clear reference to where Tepco will seek cooperation, but the wording remains vague on how much or in what ways the stakeholders will shoulder the burden.

“The bill is written in a manner that can be interpreted in any number of ways. In the end, it will come down to a political decision” regarding whether shareholders will be required to take responsibility for Tepco’s liabilities, said Toshiyuki Kanayama, a market analyst at Monex Inc.

[TEPCO]

Tepco shares had staged a powerful rally to ¥643 ($8.26) on July 22 from its record intraday low of ¥148 logged June 9 on growing prospects for the passage of the bill. However, on Wednesday the stock dropped 16% to ¥431.

“The rally was completely not fundamental,” a foreign broker in Tokyo said, adding the sharp rise was driven more by short sellers being forced to buy back the stock.

“We are trading actively because it’s moving. But nobody really knows what’s going to happen,” he said, adding that there is still a possibility Tepco shares will be delisted.

Toshiyasu Ohashi, chief credit analyst at Daiwa Securities Capital Markets Co., said the ambiguity surrounding stakeholder responsibility left open the possibility lenders will be asked to waive some loans provided to the utility.

“Tepco would not be able to survive without this bill, so its passage warrants a positive appraisal,” he said. “But it’s wrong to think the passage is the end point, and these revisions made clear that this is actually just a starting point.”

Meanwhile, Tepco said Wednesday that it may have to back away from a plan to buy a stake in one of Chevron Corp.’s Australian natural gas projects, citing its deteriorating financial position, on the same day the two companies sealed a gas supply deal.

Tepco, Japan’s largest utility, signed a binding deal to buy gas from Chevron’s Wheatstone project on Australia’s western coastline, as it ramps up its use of alternatives to nuclear power in the wake of the country’s nuclear crisis.

—Ross Kelly, Mari Iwata and David Winning in Sydney contributed to this article

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