By Taiga Uranaka
TOKYO (Reuters) - The head of Tokyo Electric Power was hospitalised on Wednesday amid mounting concerns his utility may collapse under the strain of paying for Japan's worst nuclear disaster and force the government to act to stop the crisis spreading to other companies.
Tokyo Electric President Masataka Shimizu has, like his company, been under enormous pressure since the March 11 earthquake and tsunami struck the Fukushima Daiichi nuclear complex, causing radiation leaks, blackouts and massive evacuations.
Shares in Tokyo Electric, commonly known as TEPCO, dropped another 17.7 percent on Wednesday to 466 yen and were later untraded after the company said Shimizu had been hospitalized for high blood pressure and dizziness. Chairman Tsunehisa Katsumata will take over operation of the power company, Asia's largest.
The cost of insuring TEPCO's $91 billion (57 billion pounds) in debt against default has jumped by as much 10 times since the quake, although reports the government may step in to nationalise the company has seen that ease slightly.
TEPCO shares have shed almost 80 percent since the disaster and closed at their lowest in almost five decades on Tuesday.
"We believe the stock could go to zero," an executive at a hedge fund with $1 billion invested in Asia told Reuters on condition he wasn't identified. His fund he said has been buying TEPCO debt because "we think the Japanese government will guarantee or nationalise it."
"What we have been doing is that we have been looking at senior secured debt. We have been buying basically."
The spread on TEPCO's domestic bonds stayed at 200 basis points, with no buyers or sellers, according to a Wednesday report in IFR, a Thomson Reuters publication.
TEPCO's three-year CDS blew out to a new record wide level of 510bp, meaning it costs $510,000 to insure $10 million of debt against default, IFR reported.
However, the five-year protection was quoted significantly lower at a range of 380bp-420bp compared to Monday's 450bp. The 5-year CDS was trading at about 40bp before the disaster.
BONDS VS SHARES
A de-facto government guarantee on its 7.5 trillion yen (57 billion pounds) in debt that any nationalisation would defer will shore up bondholder confidence, but by then shareholders may see their equity wiped out.
Shimizu's absence in the meantime has been conspicuous. Not seen in public since a March 13 press briefing, speculation had swirled about his leadership of TEPCO as it battles to stop radiation leaking from crippled reactors north of Tokyo.
TEPCO has been roundly criticised for its preparedness and response to the disaster, with Prime Minister Naoto Kan reportedly demanding "What the hell is going on?" as the company struggled to communicate what was happening at the site.
Experts have also questioned why so much spent fuel was kept at the plant and whether officials ignored concerns raised about its vulnerability to such a natural disaster.
Although likened to the Gulf of Mexico oil spill that hammered oil company BP, a rapid deterioration in TEPCO's share price and financial standing may present Japan's government with a systemic problem more similar to the collapse of Lehman Brothers in 2008 and force it to act sooner than it anticipated.
"It's not just about the nationalisation of TEPCO. You have to look at all the banks that are lending to the company, it's obvious that investors are going to look at their situation with a huge dose of scepticism," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
BUCKET WITH HOLES
While compensation and rebuilding claims will be huge, TEPCO's cashflow will also be hit as it pays more for alternative fuels and struggles to rebuild generation capacity.
"TEPCO will have to pay enormous reparations, counted in trillions of yen, so the government obviously has to do something about the firm. But people wouldn't let the government keep pouring tax money into this company when it's like a bucket with holes in it," said Fuijto.
So far, however, Japan's government has yet to present any bailout plan, with some officials confident that an abundant cash flow will allow the utility to stand up to the financial strain.
A government official told Reuters that annual revenue of around 5 trillions yen and assets of 12 trillion yen would be enough. Other options open to the government to help TEPCO would be allowing it to raise electricity rates or to pick some or all of the compensation claims.
But the prospect of a nationalisation had caused ripples with TEPCO shareholders.
Shares in TEPCO's main bank, Sumitomo Mitsui Financial Group, which is also a large shareholder with a 2.7 percent holding, fell 2.1 percent.
Dai-ichi Life Insurance, which is the second-largest shareholder in TEPCO with 4.1 percent stake, rose 3 percent after Deutsche Securities said the impact of TEPCO stock price fall is limited on its embedded value, a measure of an insurer's worth that includes the present value of future earnings from life insurance contracts.
Since the temblor struck, however, Dai-ichi shares have fallen 18 percent compared with a 10.3 percent decline in the benchmark Nikkei 225 index.
TEPCO provides electricity to a third of the Japanese population and usually operates enough capacity to power the whole of Britain.
($1 = 82.480 Japanese Yen)
(Additional reporting by Antoni Slodkowski and Nishant Kumar; Writing by Tim Kelly; Editing by Chris Gallagher and Lincoln Feast)