Japan's government is planning to inject about $62 billion into a fund to help Tokyo Electric Power compensate victims of the crisis at its nuclear plant and save Asia's largest utility from financial ruin.
The scheme, set to be approved by the cabinet as early as Thursday, is designed to protect bondholders and will keep Tokyo Electric shares listed, although the utility will be forced to forgo dividend payments for several years, ruling party lawmakers briefed on the plan said on Wednesday.
The plan is the result of weeks of wrangling among government officials, bankers and Tokyo Electric executives over who should foot the bill for the crisis at the Fukushima Daiichi plant, which was crippled by the March 11 earthquake and tsunami in northeastern Japan and is leaking radiation.
Tokyo Electric and creditor banks have pushed for hefty state aid, warning that problems at Japan's largest corporate bond issuer -- accounting for 8 percent of the 70 trillion yen corporate bond market -- could destabilize financial markets.
Many politicians and bureaucrats, on the other hand, are keen to hold shareholders and management accountable for the crisis.
While the government does not plan to put a limit on Tokyo Electric's liabilities, it will ask other nuclear plant operators to help fund the scheme with premiums that could also serve as insurance for future nuclear accidents.
The government will inject 5 trillion yen ($62 billion) worth of special-purpose bonds into the fund. The bonds can be turned into cash to handle the initial burst of payouts to residents who evacuated the plant's vicinity and others due compensation, allowing Tokyo Electric and other utilities to spread their burden over several years.
In one government simulation, if compensation totals 5 trillion yen, Tokyo Electric would be asked to pay back 200 billion yen to the fund annually over 13 years, with the rest to be shouldered by the other utilities.
Cabinet ministers will meet on Thursday to discuss the scheme and may approve it on the same day, Tsuyoshi Yamaguchi, a ruling party lawmaker in the lower house, told reporters.
While stock and bond holders are in principle to be protected under the scheme, another lawmaker who attended the briefing said it would be a decade before the utility, known for its healthy dividends, paid a dividend again.
The scheme is likely to be what the market has expected, with bond holders to be protected and no cap on Tokyo Electric's liabilities, said Kazuya Nakamura, deputy general manager at Norinchukin Zenkyoren Asset Management.
Now, the market's attention will shift to how much Tokyo Electric's actual liabilities will be, he said.
Tokyo Electric said on Wednesday that it had accepted conditions set by the government in return for state assistance, including additional restructuring and unlimited liability in paying compensation to crisis victims.
Kyodo news agency said the government would ask Tokyo Electric to secure 1 trillion yen in funds through asset sales and streamlining in the first year of the scheme.
Tokyo Electric likely made a net loss of more than 1 trillion yen in the year that ended on March 31, the biggest ever for a non-financial Japanese firm, after booking costs to scrap four damaged nuclear reactors and writing off tax assets, the Nikkei newspaper reported on Wednesday.
Tokyo Electric will sell assets worth about 500 billion yen to help cover costs from the crisis, the paper said.
The utility is still struggling to get reactors at Fukushima Daiichi under control two months after the disaster.
It said on Wednesday that it had sealed a fresh leak of radioactive water at the plant that it suspected was seeping into the ocean.
Tokyo Electric will finalize its accounts for the year ended in March once the scheme is officially approved, and an executive said its annual earnings report would be released on May 20. The report has been delayed due to uncertainty over its liabilities and how it will finance compensation.
Trade Minister Banri Kaieda called this week for cooperation from the utility's creditor banks, without giving details, but an executive at one top bank said it would not accept a reduction in interest payments or a partial debt waiver.
If Tokyo Electric makes such a request, it would trigger a credit event and the company would be seen as going into default. Neither the company nor the government would want that to happen, the executive said late on Tuesday, speaking on condition of anonymity due to the sensitivity of the matter.
What Tokyo Electric needs most from the banks now is to keep its loan balance maintained, the executive added.
The utility's main creditor bank Sumitomo Mitsui Banking Corp and other lenders provided 1.9 trillion yen in emergency loans to the company in the immediate aftermath of the nuclear crisis.
($1 = 80.835 Japanese Yen)
(Additional reporting by Risa Maeda, Yoshifumi Takemoto, Yoko Kubota and Sumio Ito in Tokyo, Krishna N Das in Bangalore; Editing by Edmund Klamann and Nathan Layne)