Shares in Tokyo Electric Power tumbled on Thursday after a report said the crippled Fukushima nuclear plant's operator would be effectively nationalised following a massive government share purchase.
TEPCO shares plunged as much as 16.7 percent in early Tokyo trade after the Mainichi daily said the government was planning to buy about one trillion yen ($12.9 billion) worth of the firm's new shares next year.
The stock clawed back some of its earlier losses in afternoon trade, but was still down 5.8 percent at 259 yen.
The reported share purchase would be separate from some 900 billion yen the government has already agreed to give TEPCO to help it compensate those affected by the March 11 quake and tsunami, which badly damaged the utility's Fukushima nuclear plant.
A government panel has estimated claims from victims affected by the world's worst atomic disaster since Chernobyl could reach 4.5 trillion yen by 2013.
The share purchase -- which would be made through a government-backed body set up to help pay nuclear compensation costs -- was aimed at putting the embattled company under temporary state control as it undergoes a massive restructuring, the Mainichi said.
It did not say what percentage of TEPCO shares the government would own after the sale.
The report also said Tokyo would move to replace TEPCO chairman Tsunehisa Katsumata and most of its senior executives.
But a government spokesman rejected the report Wednesday, saying "at this point, Tokyo Electric has not requested public funding."
"Under current legislation, TEPCO must first request public funding before the government provides it," he added.
Dealers said worries about the new shares diluting existing shareholders' investment weighed on TEPCO's hard-hit stock, which has lost about about 90 percent of its value since the disaster.
"Concerns over share supply-demand balance are dragging the stock down," an official at a Japanese securities firm told Dow Jones Newswires.
The government would seek shareholder approval to boost a ceiling on the issuance of new TEPCO shares at a meeting in June, the Mainichi said.
The company currently has 1.6 billion shares outstanding with the current limit set at 1.8 billion.
TEPCO's woes began when Japan's 9.0-magnitude quake and tsunami knocked out cooling systems at the Fukushima Daiichi plant, sparking reactor meltdowns, a series of explosions and the release of radiation into the environment.
The accident has not directly claimed any lives, but has left tens of thousands of people displaced and rendered whole towns uninhabitable, possibly for decades.