Japan plans to take control of Tokyo Electric Power Co, the operator of the country's stricken nuclear plant, in the face of mounting public concerns over the crisis and a huge potential compensation bill, a newspaper reported on Friday.

Shares of the company, also known as TEPCO, fell as much as 10 percent after the Mainichi newspaper said the government plans to inject public funds into the firm, although it is unlikely to take more than a 50 percent stake.

It will be a type of injection that will allow the government to have a certain level of (management) involvement, the daily quoted a government official as saying. If the stake goes over 50 percent, it will be nationalized. But that's not what we are considering.

Peppered with questions about TEPCO, Japan's Chief Cabinet Secretary Yukio Edano told a news conference the government had not decided on how it would support the company but buying a stake had not been ruled out.

Analysts say more palatable options for the government may include meeting some or all of TEPCO's liabilities, letting it raise electricity prices or spinning off and nationalizing the company's nuclear business alone.

TEPCO has come under fire for its handling of the emergency at its Fukushima Daiichi nuclear complex, triggered by a March 11 earthquake and tsunami that left more than 28,000 people dead or missing.

A series of missteps and mistakes, combined with scant signs of leadership, have undermined confidence in the company. Shares in TEPCO are down 80 percent since the disaster, wiping out about $32 billion in market value. The stock ended 3.7 percent lower on Friday.

Including this week's round of emergency loans from lenders and some $64 billion in bonds, TEPCO now has around $115 billion in debt versus equity of about $35 billion at the end of December.

The cost of insuring against debt default or restructuring by TEPCO fell on the newspaper report. The company's five-year credit default swap spread narrowed to 335/375 basis points from a record high of 475 basis points reached earlier this week, according to Markit.

SUPPORT NOT NATIONALISATION?

TEPCO said it was unaware of any government plan to inject public funds into it, adding now was not the time to discuss the future structure of the company.

While government intervention is seen as positive for TEPCO debtholders, shareholders risk further losses.

Putting TEPCO under government control is not necessarily good for the company's shareholders because TEPCO would probably be overwhelmed to repay the public money for a long time and won't be able to return anything to investors, said Fujio Ando, an adviser at Chibagin Asset Management.

In any case, they will have to make clear who will be taking responsibility. They can't keep their current management, that's something people would not want to see.

Anger against the company has seen protests outside its Tokyo headquarters, with people demanding an end to nuclear power and calling the company criminal.

The company could face compensation claims topping $130 billion if the nuclear crisis drags on, Bank of America-Merrill Lynch estimated this week, further fuelling expectations the government would step in to save Asia's largest utility.

EVACUATION ZONE

More than 70,000 people have been evacuated from a 20-km (12 mile) exclusion zone and another 130,000, who live in a 10 km (6 miles) band beyond the exclusion zone, have been advised to leave, or to stay indoors.

If TEPCO can stabilize their nuclear plant quickly, compensation claims will likely be less than 1 trillion yen ($12 billion) with payments limited to reimbursing farmers for lost crops, Nomura Holdings analyst Shigeki Matsumoto.

However, if it remains unstable, meaning long term or permanent evacuation then the cost will balloon beyond TEPCO's means. In that case the government will have to pick up the portion of compensation costs that TEPCO can't pay.

Some experts say a final resolution of the nuclear disaster is likely to take decades and there could be many further setbacks.

Under law, TEPCO could be exempt from compensation for nuclear accidents caused by natural disasters. But Mainichi quoted the official as saying it would not be possible to apply the legislation given strong public sentiment.

Investor concern about TEPCO mounted after its president, Masataka Shimizu, was admitted to hospital this week and the company said 2 trillion yen in emergency loans from Japan's major banks would not cover its rising costs.

(Additional reporting by Taiga Uranaka, Natsuko Waki and Mariko Katsumura in TOKYO and Rachel Armstrong in SINGAPORE; Editing by Lincoln Feast and Dean Yates)

Japan Energy