Japan's government agreed on Friday to set up a fund with taxpayer money to help Tokyo Electric Power compensate victims of the crisis at its tsunami-crippled nuclear plant and avoid financial collapse.
The government will issue special-purpose bonds to help finance the scheme, which will allow Asia's largest utility to make compensation payouts expected to run into the tens of billions of dollars. There will be no ceiling set on Tokyo Electric's liabilities.
In return for public backing, the government will exert control "for a certain period of time" over management of Tokyo Electric (Tepco) and other power utilities, which will also be asked to pay annual premiums into the fund.
The government did not provide details, but lawmakers told reporters earlier this week that the government plans to inject about 5 trillion yen ($62 billion) worth of special-purpose bonds into the compensation fund.
The plan, agreed after weeks of wrangling among government officials, bankers and Tepco executives over who should pay for the crisis, staves off investors' worst-case fears of a Tokyo Electric financial crisis roiling financial markets.
"This scheme will help alleviate concerns of financial market turmoil because holders of Tokyo Electric shares and bonds are protected," said Yasuhide Yajima, senior economist at NLI Research Institute.
But bank shares slid after Japan's top government spokesman said a distinction should be made between loans made before the March 11 earthquake and tsunami and those extended after the disaster and that banks should be asked to cooperate in easing Tokyo Electric's financial burden.
The market interpreted the comments from Chief Cabinet Secretary Yukio Edano as an indication banks may be asked to forgive some loans. Shares of Sumitomo Mitsui Financial Group, the utility's main creditor bank, dropped 4 percent.
Investors said there was also still much uncertainty over how much the scheme would cost, how the burden would be shared and how the government would exercise its control over power utilities.
"From the perspective of shareholders of utilities' stocks, more unclear factors have emerged after the announcement," said Yuuki Sakurai, head of Fukoku Capital Management. "It's difficult to gauge the fair value of their shares because we don't know that the government won't intervene in their nuclear power plants."
PROTECTING SHAREHOLDERS
Last week Prime Minister Naoto Kan asked another power utility to shut down a nuclear plant in an earthquake-prone area out of safety concerns, drawing both applause for bold action and fire for what critics said was a rash and poorly planned policy move.
The plan for Tokyo Electric is designed in principle to protect its bondholders and keep its shares listed, although the utility is expected to forgo dividend payments for several years as it pays back the fund for compensation.
Government officials were at pains to present the scheme as geared toward the victims of the nuclear disaster and not another corporate bailout of a powerful utility with a history of safety lapses and cozy ties with regulators.
"This framework is not meant as a bailout of Tepco. We made this framework so that compensation can take place swiftly for the victims ... and so that Tepco can supply electricity in a stable way," Trade Minister Banri Kaieda told reporters.
