Japan's TEPCO plea for debt forgiveness draws ire

TOKYO (AFP) – Japanese government remarks calling on lenders to forgive some of Tokyo Electric Power's debt have sparked acrimony and confusion, and illustrate difficulties in addressing a nuclear crisis, say analysts.

Corporate leaders have rounded on comments from Chief Cabinet Secretary Yukio Edano that banks may have to waive some pre-quake loan terms to the operator of the Fukushima nuclear plant before it gets public help to pay compensation.

"We'd like the government to avoid making rash comments that will affect earnings and share prices before they have a clear policy," Yasuchika Hasegawa, the newly appointed chairman of the Japan Association of Corporate Executives, said Tuesday.

Edano's comment "was a bit extreme," said Tsuyoshi Ueno, senior economist at NLI Research Institute.

"If banks do drop loans, they would have to expect their own ratings go down. This would inevitably affect their business performance and negatively impact the entire financial sector."

Shares in Japan's biggest banking groups such as Sumitomo Mitsui Financial Group, TEPCO's key lender, and Mizuho Financial Group have endured volatile trade on fears they face big losses if some of TEPCO's debts are forgiven.

Tokyo Stock Exchange President Atsushi Saito was quoted in the Nikkei business daily as saying Edano's comments were "illogical".

And Katsunori Nagayasu, president and chief executive of Japan's top banking group Mitsubishi UFJ Financial Group said they "came out of blue".

He added that lenders haven't fully assessed TEPCO's actual financial situation, and cited the difficulty of forgiving loans under such circumstances.

TEPCO is expected to face claims worth tens of billions of dollars to pay compensation to those affected by the nuclear crisis.

More than 80,000 people who have been forced from their homes, businesses and farms in a 20-kilometre (12-mile) zone around the Fukushima Daiichi plant after it was hit by the March 11 quake-tsunami, and has since leaked radiation into the air, ground and sea.

The government last week announced a framework for keeping TEPCO solvent that will use public and industry funds to pay compensation claims over the ongoing crisis at its Fukushima Daiichi nuclear plant.

Ueno said TEPCO's pre-quake bank loans were about 2 trillion yen ($24 billion).

JPMorgan analyst Katsuhito Sasajima calculates waiving only a portion of TEPCO's pre-quake loan amount "would be extremely negative."

On Monday Moody's downgraded TEPCO to one notch above "junk" status and cited recent assessments that damage to the Fukushima Daiichi plant has been more severe than previously stated.

It added: "If the framework adopted requires creditor concessions in respect of TEPCO's debt, such an outcome would likely constitute a default under its definitions and result in multi-notch downgrades to all long-term debt ratings."

The firm at the centre of the world's worst nuclear crisis in 25 years is also Japan's largest corporate bond issuer, accounting for eight percent of the country's 62 trillion yen ($765 billion) corporate bond market.

As Asia's biggest power company, TEPCO supplies electricity for Tokyo and the wider Kanto region, an area that accounts for more than a third of the nation's gross domestic product.

-- Dow Jones Newswires contributed to this story --