Japan plans to bail out stricken nuclear plant operator

Japan plans to take control of Tokyo Electric Power Co, the operator of the country's stricken nuclear plant, in the face of mounting public concerns over the crisis and a huge potential compensation bill, a newspaper reported on Friday.

Shares of the company, also known as TEPCO, fell as much as 10% after the Mainichi newspaper said the government plans to inject public funds into the firm, although it is unlikely to take more than a 50% stake.

"It will be a type of injection that will allow the government to have a certain level of (management) involvement," the daily quoted a government official as saying.

"If the stake goes over 50%, it will be nationalised. But that''s not what we are considering."

Peppered with questions about TEPCO, Japan's chief cabinet secretary Yukio Edano told a news conference the government had not decided on how it would support the company but buying a stake had not been ruled out.

Analysts say more palatable options for the government may include meeting some or all of TEPCO's compensation liabilities, letting it raise electricity prices or spinning off and nationalising the company's nuclear business alone.

Prime Minister Naoto Kan said TEPCO should remain in private hands.

"TEPCO has been operating as a private company. As I said, now we would need to support them, but I would basically like for TEPCO to work hard as a private company," he told a news conference.

TEPCO has come under fire for its handling of the emergency at its Fukushima Daiichi nuclear complex, triggered by a March 11 earthquake and tsunami that left more than 28,000 people dead or missing.

A series of missteps and mistakes, combined with scant signs of leadership, have undermined confidence in the company. Shares in TEPCO are down 80% since the disaster, wiping out about $32 billion in market value.

The stock fell to an intraday low of 399 yen on Friday, near a lifetime low of 393 yen dating back to 1951, and closed down 3.7% at 449 yen.

Including this week''s round of emergency loans from lenders and some $64 billion in bonds, TEPCO now has around $115 billion in debt versus equity at the end of December of about $35 billion.

The cost of insuring against debt default or restructuring by TEPCO fell on the newspaper report. The company's five-year credit default swap spread narrowed to 335375 basis points from a record high of 475 basis points reached earlier this week, according to Markit, a financial information company.

TEPCO domestic bonds maturing within three years were quoted to yield around 200-500 basis points over Japanese government bonds on Friday, Thomson Reuters publication IFR reported. Before the quake, they were about 10 basis points over JGBs.

Tokyo Electric timeline, shares and debt:

TEPCO said it was unaware of any government plan to inject public funds into it, adding now was not the time to discuss the future structure of the company.

While government intervention is seen as positive for TEPCO  debtholders, shareholders risk further losses.

"Putting TEPCO under government control is not necessarily good for the company's shareholders because TEPCO would probably be overwhelmed to repay the public money for a long time and won't be able to return anything to investors," said Fujio Ando, an adviser at Chibagin Asset Management.

"In any case, they will have to make clear who will be taking responsibility. They can't keep their current management, that's something people would not want to see."

Anger against the company has seen protests outside its Tokyo headquarters, with people demanding an end to nuclear power and calling the company "criminal".

The company could face compensation claims topping $130 billion if the nuclear crisis drags on, Bank of America-Merrill Lynch estimated this week, further fuelling expectations the government would step in to save Asia''s largest utility.                                                                                   

More than 70,000 people have been evacuated from a 20km (12 mile) exclusion zone and another 130,000, who live in a 10km (6 miles) band beyond the exclusion zone, have been advised to leave, or to stay indoors.

"If TEPCO can stabilise their nuclear plant quickly, compensation claims will likely be less than 1 trillion yen  ($12 billion) with payments limited to reimbursing farmers for lost crops," Nomura Holdings analyst Shigeki Matsumoto said.

"However, if it remains unstable, meaning long term or permanent evacuation, then the cost will balloon beyond TEPCO's means. In that case, the government will have to pick up the portion of compensation costs that TEPCO can't pay."

Some experts say a final resolution of the nuclear disaster is likely to take decades and there could be many further setbacks.

Under law, TEPCO could be exempt from compensation for nuclear accidents caused by natural disasters.

But Mainichi quoted the official as saying it would not be possible to apply the legislation given strong public sentiment.

Investor concern about TEPCO mounted after its president, Masataka Shimizu, was admitted to hospital this week and the company said 2 trillion yen in emergency loans from Japan's major banks would not cover its rising costs.