Toshiba off Tokyo bourse's special watchlist, but ISS
critical of accounting
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[October 11, 2017]
By Makiko Yamazaki
TOKYO (Reuters) - The Tokyo bourse said on
Wednesday it was taking Toshiba Corp off a special watchlist, citing
improved internal controls - a move that lessens but does not completely
remove the risk of a delisting for the embattled conglomerate.
But offering a starkly different view of Toshiba's accounting practices,
proxy advisory firm ISS said it has recommended that Toshiba's
shareholders do not approve the firm's earnings statements for the past
financial year after a mixed review from its auditor.
Toshiba was placed on the bourse's watchlist in the wake of a 2015
accounting scandal. It plunged into crisis again as of late last year
after billions of dollars in liabilities emerged at its now bankrupt
U.S. nuclear unit Westinghouse - problems that also raised fresh
accounting concerns.
Aiming to plug the hole in its balance sheet, the Japanese company last
month agreed to sell its chip unit to a consortium led by U.S. private
equity firm Bain Capital for $18 billion, although the deal still needs
to clear regulatory reviews and overcome legal challenges.
"The market had been expecting that the Tokyo bourse will remove Toshiba
from the list and allow it to remain listed because the firm is too big
to fail," said Masayuki Otani, chief market analyst at Securities Japan.
Not only does the Japanese government see Toshiba's chip business as
vital to its national interests, the conglomerate's domestic nuclear
business is also key to the decommissioning of the Fukushima plants
damaged in the 2011 earthquake and tsunami.
But the Tokyo stock exchange could come under further pressure to delist
Toshiba if it is in negative net worth for a second year in a row at the
end of March - a very real possibility as the chip deal may not gain
regulatory clearance by then and it may struggle to raise funds by other
means.
S&P Global Ratings said this month that there was "over a one-in-three
chance that Toshiba will fail to receive sale proceeds and resolve its
insolvency by March 31."
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A logo of Toshiba Corp is seen outside an electronics retail store
in Tokyo, Japan, February 14, 2017. REUTERS/Toru Hanai/File Photo
If shareholders do not sign off on Toshiba's earnings at a Oct. 24 extraordinary
meeting as recommended by ISS, that could also imperil Toshiba's ability to the
recover from the crisis. Japanese shareholders, however, rarely reject proposals
by management.
Auditor PricewaterhouseCoopers Aarata LLC gave Toshiba's financial statements a
"qualified opinion" that endorsed Toshiba's finances despite some minor
problems, but also made an "adverse" statement on Toshiba's internal controls.
"It would be difficult to justify support for this resolution given the fact
that the audit firm has rendered a qualified opinion, basically reflecting the
auditor's view that Toshiba's financial statements are not accurate," ISS said.
The controversy over Toshiba's internal controls comes just as questions over
corporate governance in Japan have taken the spotlight again, with a Kobe Steel
Ltd crisis deepening on fresh revelations of data fabrication.
Separately, Toshiba said on Wednesday it would invest an additional 110 billion
yen ($980 million) in the Fab 6 chip production line in Yokkaichi, central
Japan, on top of a planned initial investment of 195 billion yen.
Toshiba also said it has recently asked Western Digital's SanDisk unit whether
it intends to jointly participate in the investment.
Western Digital, Toshiba's joint chip venture partner, objects to any sale
without its consent, and is seeking an injunction to block the deal in the
International Court of Arbitration.
(Reporting by Makiko Yamazaki; Additional reporting by Chris Gallagher and
Takahiko Wada; Editing by Edwina Gibbs)
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