Toshiba flags hit of
'billions of dollars' on U.S. nuclear acquisition
Send a link to a friend
[December 27, 2016]
By Makiko Yamazaki
TOKYO
(Reuters) - Toshiba Corp said it may have to book several billion
dollars in charges related to a U.S. nuclear power acquisition, a shock
warning that sent its stock tumbling 12 percent and rekindled concerns
about its accounting acumen.
The Japanese group said cost overruns at U.S. power projects handled by
a nuclear construction business newly acquired from Chicago Bridge &
Iron (CB&I) <CBI.N> would be much greater than initially expected,
potentially requiring a huge writedown.
Such a hit would be another slap in the face for a sprawling
conglomerate hoping to recover from a $1.3 billion accounting scandal as
well as a writedown of more than $2 billion for its nuclear business in
the last financial year."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.
O'Sullivan noted the acquisition in December 2015 coincided with the
finalizing of a record fine by Japanese regulators for accounting
irregularities at Toshiba, indicating that corporate governance controls
were extremely weak.
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, said the conglomerate would look at some
kind of strategy to boost capital.
"We would have needed to boost our capital base anyway because our
shareholders' equity ratio is low," he told a news conference.
As of end-September, Toshiba had shareholders' equity of 363 billion
yen, or just 7.5 percent of assets, which could fall close to zero if
the company is forced to log significant losses.
Asked if Toshiba's liabilities would exceed its assets, Chief Financial
Officer Masayoshi Hirata said the company had not yet completed its
estimation of the charge.
It would finalize that by mid-February, he said, adding that the
conglomerate would explain the situation to its main banks and seek
their support. Toshiba's main lenders are Sumitomo Mitsui Financial
Group Inc and Mizuho Financial Group.
Toshiba has positioned its nuclear and semiconductors businesses as key
pillars of growth while seeking to scale down less profitable consumer
electronics units such as personal computers and TVs.
[to top of second column] |
Toshiba Corp CEO Satoshi Tsunakawa attends a news conference at the
company's headquarters in Tokyo, Japan, December 27, 2016.
REUTERS/Toru Hanai
But
Toshiba could revise the positioning of its nuclear business if need be, said
Tsunakawa, who has been credited with having shaped a medical equipment unit
into a major earnings driver. The unit was sold to Canon Inc this year.
Tsunakawa added that asset sales or a potential listing of its cashcow flash
memory chips division were options that could be considered.
DEAL OF DISCORD
The deal between CB&I and Toshiba's Westinghouse division has been fraught with
disagreement since at least July.
Clashing over who should shoulder potential liabilities related to cost overruns
and over calculations for working capital for the unit, CB&I sued Toshiba's
Westinghouse division after Westinghouse said it was owed more than $2 billion.
Toshiba has not disclosed its financial advisers for the deal.
Shares
in Toshiba, which remains on the Tokyo bourse's watchlist due to concerns about
the firms' internal controls, finished 12 percent lower, giving it a market
value of around $14.2 billion. The charges were flagged earlier in the day.
Prior to Tuesday, Toshiba had forecast a full-year net profit of about 145
billion yen this financial year, a turnaround from a loss of 460 billion yen,
thanks to strong demand for flash memory chips from Chinese smartphone makers.
Masahiko Ishino, an analyst at Tokai Tokyo Research Center, said the focus may
soon shift to whether Toshiba will divest some of its businesses if the latest
loss wipes out its shareholders' equity.
"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.
(Reporting by Makiko Yamazaki; Additional reporting by Aaron Sheldrick, Ayai
Tomisawa, Yoshiyuki Osada and Chris Gallagher, in Tokyo and Aparajita Saxena in
Bengaluru; Editing by Edwina Gibbs)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |