TOKYO Major creditors of Tokyo Electric Power Co are ready to lend the loss-making utility 1 trillion yen ($12.4 billion), but won't commit the money until they see if the firm's turnaround plan meets some key conditions, bank sources said on Thursday.
The lenders are concerned if two conditions -- raising power tariffs and the restart of the utility's nuclear power plants -- can be met in the face of public and political opposition following the Fukushima nuclear power plant disaster a year ago.
Sources said the most likely option under discussion is for Tokyo Electric to issue bonds backed by collateral to the lenders in exchange for the funds.
"We have a fiduciary duty to our clients and shareholders," said a banking source.
"We cannot make a commitment when we are not sure about these things. We could get sued if things do not turn out as we expect and we cannot recover our loans," said the source, who is not authorized to discuss the matter publicly so did not want to be identified.
Tokyo Electric (Tepco) said on Feb 13 it would make a group net loss in the year to March 31 of 695 billion yen after its Fukushima plant was crippled by an earthquake and tsunami that triggered the worst nuclear disaster since Chernobyl. It left the firm with huge clean-up, compensation and decommissioning costs.
The crisis also prompted Japan to scrap a plan to boost atomic power to meet more than half of electricity demand by 2030 from about 30 percent before the accident, and it is working to craft a new energy policy by summer.
Most of Japan's nuclear reactors are shut down over public safety fears and may not reopen in time for the peak summer months. Japan's Trade Minister Yukio Edano has threatened to block $13 billion in public funds for the utility unless the government gets more say in running the company.
Tepco's last remaining reactor that is operating will be shut for maintenance on March 26.
Unless the two conditions are met, bankers say Tokyo Electric is unlikely to return to profitability in the near future, much less repay its debts. With nuclear plants shut down, Tokyo Electric and other utilities are importing expensive fuel to fire power stations, adding to operating costs.
One concern of lenders is that Edano may demand a much smaller rate hike for retail users than the company wants, or even reject a tariff increase outright.
The government set up a bailout body last year to help Tokyo Electric pay for compensation for nuclear damage and the two are set to finalize a turnaround plan this month, which will include an injection of about 1 trillion yen in public funds.
Lenders, including the company's main creditor Sumitomo Mitsui Banking Corp, are planning to provide about 500 billion yen in new loans, 400 billion yen in credit lines and to roll over 170 billion yen in existing loans, three banking sources familiar with the matter said.
State-run Development Bank of Japan is likely to provide the bulk of the new loans, the sources said. Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank and major trust banks and life insurance companies will also participate, the sources said.
The plan is due to be submitted for government approval, but bankers expect a bumpy ride as Tokyo Electric and the government tussle over other sticking points, including how much say the government will have in running Tokyo Electric in exchange for the public money.
Some lenders are very cautious and want a much clearer idea of Tokyo Electric's viability before committing new loans.
"There are still too many uncertain factors," said a banking source.
Tokyo Electric, which provides power to about 45 million people in the Tokyo area, has already announced plans for a 17 percent rate hike for business users . Tariffs for households, though, are government regulated.
Shortly after the March 11, 2011, disaster, Tokyo Electric's creditors provided about 2 trillion yen in emergency loans to the company.
Later, Edano, then chief cabinet secretary, suggested that the creditors should shoulder some of the burden of supporting the utility in exchange for taxpayer funds being injected into the company to help it pay damages to disaster victims. The government didn't follow through, but banks remain wary.
"Before we make loans, we have to make sure borrowers can pay them back. And we have to study the possibility of debt rescheduling or a waiver," said an executive at a life insurance firm with loans to Tokyo Electric. ($1=80.835 yen)
(Additional reporting by Kentaro Hamada; Editing by Neil Fullick and Linda Sieg)