Japan's top lenders including Sumitomo Mitsui Financial Group <8316.T> are in talks to provide up to 2 trillion yen ($24.7 billion) in emergency loans to Tokyo Electric Power <9501.T> to help the operator of a stricken nuclear plant rebuild its power supply network.
SMFG, the utility's main lender, is expected to provide more than 500 billion yen in loans, making it the biggest single lender in the emergency financing, said the sources, who were not authorized to speak publicly about the matter.
Mitsubishi UFJ Financial Group <8306.T> and Mizuho Financial Group <8411.T> are considering loans of 200-500 billion yen each, the sources said.
Sumitomo Trust and Banking <8403.T> and other major trust banks are also expected to offer funds.
The banks could begin providing the loans by the end of this month, which would be used to fix damaged plants and other reconstruction efforts, the sources said.
Given the amount of cash on the balance sheet, I am surprised at the urgency of talks but certainly the need to prevent a crisis of confidence could be seen as necessary to keep recovery efforts stable, Penn Bowers, an analyst at CLSA Asia-Pacific Markets in Tokyo.
Interesting, as one suspects that the government has implicitly guaranteed the survival of TEPCO as a regulated entity if all these institutions are willing to accept the risk, he said.
TEPCO had 432 billion yen in cash and equivalents at the end December 2010, according to its financial statements, and around 5.8 trillion yen in outstanding debt.
Tokyo Electric's Fukushima Daiichi power plant was damaged in the powerful earthquake and tsunami on March 11, and engineers are working to restore cooling functions and limit the release of radiation.
On Tuesday, TEPCO's five-year credit default swaps fell 61 basis points from Monday's close to 245 bps, according to Markit.
The CDS reached a record high of 373 bps on March 17, as engineers struggled to salvage the Fukushima plant.
We don't have a problem with cash at hand, but as we see a need for large funds in next financial year (beginning on April 1), we are procuring funds as needed, said Hajime Motojuku, a TEPCO spokesman, declining to elaborate.
A spokeswoman for Sumitomo Mitsui Banking Corp, the core commercial banking unit of SMFG, declined to comment on transactions with a specific client but said the bank would like to give maximum support for TEPCO as its main lender.
A spokesman for MUFG said the bank has been approached by TEPCO for loans but details have not been decided yet. A Mizuho spokesman said he could not comment on individual transactions.
By early afternoon in Tokyo shares of TEPCO were down 1.4 percent at 1,083 yen, underperforming a 0.9 percent fall in the benchmark Nikkei average <.N225>. The stock has fallen by about half since the disaster on March 11, cutting its market value to less than $22 billion. ($1 = 81.065 Japanese Yen)
(Additional reporting by Taro Fuse, Junko Fujita and James Topham; Editing by Nathan Layne and Lincoln Feast)