Japan utilities may return to bonds as $19 bln debt matures

* 1.5 trillion yen in utility bonds matures in 2012/13

* High costs may limit volume of bonds to be sold

* Syndicated loans tripled to 1.2 trln yen in 2011

By Chikafumi Hodo and Taiga Uranaka

TOKYO, Jan 25 (Reuters) - Japan's electricity utilities may resume issuing bonds to help roll over $19 billion worth of corporate debt that matures next fiscal year, but the bulk of their funding will still come from loans.

The utilities were virtually shut out of the bond market last year amid a series of credit rating downgrades and as the radiation crisis at the Fukushima Daiichi nuclear plant led to the shutdown of nuclear reactors.

The ability to charge higher prices and restarts of nuclear capacity would be the key factors that need to be in place for power companies to resume issuing debt, analysts said.

"We are seeing signs of a deep fog clearing slightly in the industry, which would make it possible for utility firms to issue bonds this year," said Akane Enatsu, a senior credit analyst at Barclays Capital.

"Still investors will be picky. I think investors will be more keen to invest in electric power companies that are less reliant on nuclear plants," Enatsu said.

A total of about 1.49 trillion yen ($19.35 billion) worth of bonds issued by nine major electric power companies, including Fukushima operator Tokyo Electric Power Co and Kansai Electric Power Co, are due to mature in the financial year starting on April 1, the power companies said.

In the current financial year, which has seen the industry struggle with a collapse in nuclear utilisation rates, about 1.35 trillion yen in utility bonds mature.

BRIGHT SIGNS

The government may allow Tokyo Electric, known as Tepco, to raise charges for household customers, according to local media reports, something the government had previously resisted. Tepco has already raised rates for corporate users, its first hike since 1980.

Since the nuclear crisis started, Tepco had wanted to pass on a surge in fuel costs to customers. An increase in retail charges would greatly improve Tokyo Electric's financial health, something the bond market has been waiting for.

The market will also be closely tracking government efforts to persuade a public wary over nuclear safety to accept the restart of reactors shut for routine checks, a must-have for the financial health of the utilities.

The government has also doubled its repayment guarantees on private-sector banks' loans to the state-backed nuclear accident compensation fund.

Only four of the nation's 54 reactors remain online, pushing up costs for utilities that need to import more fossil fuels to bridge the gap and prevent power cuts. Stress tests are now being carried out on reactors to reassure the public and persuade local governments to allow them to restart, though no dates have yet been agreed.

Even if nuclear plants resume operations, the volume of bonds that utilities could issue is likely to be small and the cost of doing so high.

"Power companies will be able to issue bonds if their spreads narrow from current levels," said Takayuki Atake, chief credit analyst at SMBC Nikko Securities.

Before the radiation crisis, utilities accounted for more than 20 percent of the Japanese corporate bond market, with Tepco alone taking 8 percent.

Utility bonds were regarded as nearly equal to Japanese government bonds, with spreads for them offered around 5 to 6 basis points (bps) over the yield on the equivalent Japanese government bond before the crisis. Their spreads are now around 40-50 bps over JGBs.

Spreads for Tepco bonds, which have been very volatile since the crisis, are around 700 bps over JGBs.

Officials at electric power companies said they will seek opportunities to raise funds from the bond market.

"We'll cope by shifting to bank loans if we can't issue bonds, although we'll continue seeking chances to issue bonds by closely watching market conditions," said an official at Chugoku Electric Power Co.

GROWING EXPOSURE

While a surge in loan requests by utilities may be welcomed by Japanese lenders, which have struggled with weak loan demand for months, growing exposure to the sector has raised concerns among some analysts.

The volume of syndicated loans to Japanese electric power companies nearly tripled to 1.16 trillion yen in 2011 from 448.8 billion yen the previous year, Thomson Reuters data shows.

Katsunori Nagayasu, president of Mitsubishi UFJ Financial Group, Japan's largest bank by assets, said his bank has been meeting loan requests by utilities "100 percent" so far, but there is a question how much more banks can lend.

"There is a limit somewhere. There is a limit on how much a bank can extend credit to one particular borrower," Nagayasu, who is also chairman of the Japanese Bankers Association, said at the lobby group's regular news conference last week.

The business environment for utilities will remain tough as their income is expected to be restrained with both households and companies being urged to use less electricity.

High fuel costs will also weigh on their earnings if they have to rely on thermal power.

"If I have to choose between positive or negative, it's negative to increase exposure to a sector with such uncertainty," said Naoko Nemoto, managing director at Standard & Poor's in Tokyo.

Nana Otsuki, a banking analyst at Merrill Lynch Japan Securities, said growth in lending to power firms is not an immediate concern.

"Banks' exposure to the power utility industry remains relatively small compared with (traditionally heavily indebted) sectors like real estate," Otsuki said.

($1 = 77.0100 Japanese yen) (Additional reporting by Wakako Sato and Naoyuki Katayama; Editing by Michael Watson and Matt Driskill)