U.S. Nuclear Acquisition Makes Toshiba Signal Hit of ‘Billions of Dollars’

In a shock warning that sent its stock tumbling 12 percent and rekindled concerns about its accounting acumen, Toshiba Corp said it may have to book several billion dollars in charges related to a U.S. nuclear power acquisition.

Potentially requiring a huge writedown, the cost overruns would be much greater than initially expected at U.S. power projects handled by a nuclear construction business newly acquired from Chicago Bridge & Iron (CB&I), The Japanese group said.

In addition to a writedown of more than $2 billion for its nuclear business in the last financial year, the group is trying to recover from a $1.3 billion accounting scandal and such a hit would be another slap in the face for a sprawling conglomerate hoping get back to its feet.

“This will come as an additional shock to Toshiba’s institutional investors that may further undermine confidence in company management as well as significantly weakening its international nuclear credentials,” said Tom O’Sullivan, founder of energy consultancy Mathyos Japan.

Indicating that corporate governance controls were extremely weak, a record fine by Japanese regulators for accounting irregularities at Toshiba were finalized in December 2015 coinciding with the acquisition, O’Sullivan noted.

The conglomerate would look at some kind of strategy to boost capital, said Toshiba Chief Executive Satoshi Tsunakawa, who only took the helm in June after his predecessor embarked on a series of restructuring steps to clean up Toshiba’s books.

“We would have needed to boost our capital base anyway because our shareholders’ equity ratio is low,” he told a news conference.

Chief Financial Officer Masayoshi Hirata said the company had not yet completed its estimation of the charge when asked if Toshiba’s liabilities would exceed its assets.

Saying that the conglomerate would explain the situation to its main banks and seek their support, he said that the asset issue would be finalized by mid-February. Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group are Toshiba’s main lenders.

While seeking to scale down less profitable consumer electronics units such as personal computers and TVs, Toshiba has positioned its nuclear and semiconductors businesses as key pillars of growth.

Tsunakawa, who has been credited with having shaped a medical equipment unit into a major earnings driver, said Toshiba could revise the positioning of its nuclear business if need be. The unit was sold to Canon Inc this year.

Asset sales or a potential listing of its cashcow flash memory chips division were options that could be considered, Tsunakawa added.

Giving it a market value of around $14.2 billion, the charges were flagged earlier in the day, shares in Toshiba, which remains on the Tokyo bourse’s watchlist due to concerns about the firms’ internal controls, finished 12 percent lower.

Thanks to strong demand for flash memory chips from Chinese smartphone makers and noting a turnaround from a loss of 460 billion yen, prior to Tuesday, Toshiba had forecast a full-year net profit of about 145 billion yen this financial year.

The focus may soon shift to whether Toshiba will divest some of its businesses if the latest loss wipes out its shareholders’ equity, said Masahiko Ishino, an analyst at Tokai Tokyo Research Center.

“There will be a lot of companies that want to buy Toshiba’s businesses,” Ishino said. “It is possible that its NAND flash memory business would attract various buyout offers as there are few players in the market,” he said.

(Adapted from Reuters)

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Categories: Economy & Finance, Sustainability

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