Power Utilities Borrow Record Bank Loans as Fuel Costs Jump: Japan Credit

[phantom power]

Japan’s top five electric utilities, shut out of the bond market following the Fukushima nuclear disaster, are borrowing a record 4 trillion yen ($52 billion) in loans at a premium to pay for the surging cost of fuel.

Tohoku Electric Power Co., based in the tsunami-damaged northeast, will pay 1.4 percent interest on the 50 billion yen, 15-year loan it clinched on Sept. 30, or a 45.5 basis points spread over the similar-maturity government notes, according to Bloomberg calculations based on company data. Borrowing at that rate, the Japanese utilities would pay an extra 2.6 billion yen in loan interest this fiscal year than they would selling bonds, the calculations show.

Tokyo Electric Power Co., Japan’s largest utility, and its peers are facing lower profit margins as the shutdown of Japan’s atomic plants after the world’s worst accident since Chernobyl has forced the utilities to burn more natural gas and coal to meet demand. The companies are scrambling for alternative sources of financing to replace a net 1.25 trillion yen worth of bonds retired since the March 11 earthquake and tsunami caused uncertainty over the future of atomic energy in the country.

“Reactor shutdowns and the burning of fossil fuel is pushing utilities into the red and forcing the industry to rely on bank loans and short-term financing,” said Kenji Okamoto, a Tokyo-based senior analyst at the corporate finance group of Moody’s Japan K.K. “With so much left to be resolved it’s hard for them to sell bonds.”

http://www.bloomberg.com/news/2011-10-06/power-companies-borrow-record-in-loans-as-cost-of-fuel-jumps-japan-credit.html