Foreign distressed investors said to be buying Tepco bonds
By Junko Fujita and Mia Tahara-Stubbs
TOKYO, June 14 | Tue Jun 14, 2011 3:54am EDT
http://www.reuters.com/article/2011/06/14/tepco-bonds-idUSL3E7HE0YG20110614
TOKYO, June 14 (Reuters) - Foreign hedge funds and investors in high-yield debt are buying Tokyo Electric Power bonds as they bet Japan's parliament will enact a law to help the utility compensate those affected by the crisis at its nuclear plant and keep it solvent , market experts said.
While Japanese investors are avoiding the risk of holding debt issued by the utility known as Tepco, investors in distressed assets are betting that passage of the law would give them the opportunity to sell Tepco bonds and take profits, they said.
"This is a very rare case that such foreign investors are focusing on bonds issued by Tepco, which in the past paid very low yields," said a Tokyo-based credit analyst at a foreign brokerage.
"They are buying Tepco bonds now when they are cheap and aiming to sell them when the legislation is passed in parliament," said the analyst, who requested anonymity because he is not allowed to speak publicly about specific companies.
Since a massive earthquake and tsunami three months ago triggered radiation leaks at Tepco's Fukushima Daiichi plant 240 km (150 miles) north of Tokyo, the utility's shares have plummeted and its credit default swap spreads spiked to record peaks, reflecting investor scepticism about the utility's fate as compensation claims mount.
Japan's cabinet on Tuesday approved a draft law on the compensation scheme for Tepco, sending shares of the utility up as much as 13 percent.
Spreads on Tepco's credit default swaps , meanwhile, narrowed about 230 basis points to a mid-point of 970 basis points, according to data from MarkIt, down from record peaks above 1,200 basis points the previous day.
But it remains uncertain when, or even if, the scheme will be enacted into law, as Prime Minister Naoto Kan faces growing pressure to quit and his cabinet has been unable to get several disaster-related bills passed in a divided parliament.
While the government may protect Tepco from going bankrupt, ratings agency Standard and Poor's on May 30 cut its credit rating on Tepco to junk status, saying the utility's lenders were more likely to be forced to write off debt as part of a plan to compensate victims of the ongoing nuclear crisis.
Their exposure to Tepco's bonds is not known but Japan's three biggest banks -- Mitsubishi UFJ Financial , Mizuho Financial Group and Sumitomo Mitsui Financial Group , Tepco's biggest lender -- have 2.2 trillion yen ($27.4 billion) worth of collective exposure to Tepco, one bank analyst estimates.
The three banks have been seen selling Tepco bonds to distressed debt funds, IFR reported. The banks were also said to be selling Japanese government bonds to raise funds in case they need to increase capital reserves against their loan exposure to Tepco.
Moody's Investors Service said on May 19 it might review Tepco's credit ratings if Japan failed to pass laws to help the utility handle compensation payments, which means the bond may be rated as a non-investment grade. ($1 = 80.225 Japanese Yen) (Additional reporting by Atanas Dinov; Editing by Chris Gallagher)
