Debate Begins on Tepco's Future

TOKYO—Shares of Tokyo Electric Power Co. hit a 34-year low Monday as speculation grew about a possible government takeover of the company, which faces multibillion-dollar losses from its nuclear disaster.

A spokesman for Prime Minister Naoto Kan said nationalization isn't on the agenda, but Japan was abuzz with talk about how the company, known as Tepco, could handle its liabilities.

"There is a strong possibility the current legal framework may not be adequate to solve the situation. The solution then will be temporary nationalization of the company," said Yoshimi Watanabe, leader of the opposition Your Party, at a news conference Friday.

Billions of dollars are likely to be sought by people in the 20-kilometer (12-mile) evacuation zone around the nuclear plant, as well as farmers beyond the zone who had to destroy crops because of radiation exposure and other victims.

Tepco and the government haven't given an official liability estimate, but the company has said it wants to raise two trillion yen, or about $25 billion. Major banks have expressed willingness to provide loans. The company just finished raising 450 billion yen through an equity offering last October.

A key question is whether the troubles at Tepco's Fukushima Daiichi nuclear-power plant qualify under a 1961 Japanese law as a "grave natural disaster of an exceptional character." If so, under the law the government would likely be responsible for much of the damages.

Tepco shares fell by the maximum daily limit Monday, dipping nearly 18% to 696 yen from 846 yen at Friday's close on the Tokyo Stock Exchange. Before the March 11 quake, the shares were trading above 2,100 yen, meaning they have lost more than two-thirds of their value.

A Tepco spokesman said Monday that the company is focusing on the Fukushima Daiichi problems and hasn't given thought to how the company's structure might change after the problems are resolved. The spokesman said Tepco will take direction from the government in determining how damages should be paid.

Stumbles by Tepco since the quake have created public-image problems and have made it harder for the government to do anything that might be perceived as a bailout of Tepco in its current structure. Over the weekend, the company reported that radiation at the plant's No. 2 reactor was 10 million times the normal level, only to revise the estimate later in the day to 100,000 times. The company apologized for the error.

Mr. Edano said Monday that the erroneous readings are "not acceptable."

In another embarrassment, Tepco said its president, Masataka Shimizu, spent several days away from crisis headquarters starting March 16 because of illness. The company said that during his time away, Mr. Shimizu continued to monitor the situation from another part of Tepco's home office. He hasn't been seen in public since March 13.

It is common in Japan for chief executives to keep a low profile during a crisis, as Toyota Motor Corp. CEO Akio Toyoda did last year during the early stages of an uproar over safety issues. Still, Mr. Shimizu's extended absence from the public eye has begun to raise comment, although the company says he is directing efforts from behind the scenes.

The cost of protection against a default on Tepco bonds has risen about 10-fold since before the quake. Both Moody's and Standard & Poor's have cut the company's credit rating by one notch.

"There are growing concerns that the nuclear issue may drag on for a protracted period," said Masayoshi Yano, a market analyst at Meiwa Securities.

Tepco has said its plant wasn't built to withstand a tsunami estimated at 14 meters and a 9-magnitude quake, the strongest in Japan's recorded history. The government approved the plant as built, so Tepco could argue that any accident caused by such a calamity counts as a "grave natural disaster."

However, the government's chief spokesman, Yukio Edano, said Friday that he believed an exemption from liability was "impossible" under the "social circumstances."

Tokyo-based equity strategist Nicholas Smith said Tepco has a large amount of debt compared with its net worth. "It had very strong free cash flow, which was what made that debt acceptable, but they are going to have to spend a lot of money now," he said. "The future of the company is very uncertain."

A spokesman for Japan's cabinet said the government is occupied with fixing the problems at Fukushima Daiichi. "We do not see any need to change this structure and nationalize Tepco," said spokesman Noriyuki Shikata.

Tepco retains support as a pillar of Japan's business community. Lorne Steinberg, who runs a Canada-based fund with a quarter of its assets in Japan, said the company's shareholders include powerful institutions that would be loath to see their shares wiped out. Foreign investors, including major names such as Vanguard, owned slightly under 18% of Tepco shares as of March 2010.

"Virtually everybody has a strong stake in seeing it successful," Mr. Steinberg said.