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Toshiba warns of multibillion-dollar charge

Toshiba warned the market that it could book an impairment loss of “several billion dollars” at its troubled US nuclear division and reconsider its presence in that industry as accounting issues returned to blight one of Japan’s biggest industrial names.

With Toshiba’s financial position becoming more clouded by the announcement, its chief executive, Satoshi Tsunakawa, told a press conference on Tuesday night in Tokyo that the company was “mulling ways to raise additional capital”.

Mr Tsunakawa, who took over in June, said: “We are considering steps that include some sort of capital strategy.” He and Toshiba’s chief financial officer were unable to rule out the risk that the impairment charge would wipe out the company’s shareholder equity, which stood at ¥363bn at the end of September.

Toshiba said the writedown “far exceeded” earlier estimates, although the exact size was still under discussion. It lands a heavy blow on the semiconductor-to-nuclear conglomerate’s efforts to rebuild investor confidence after a 2015 accounting scandal in which the group admitted inflating its net profits by $1.3bn over seven years.

Since then Toshiba has stressed that the nuclear division — along with the semiconductor memory business — was one of the pillars of its growth strategy.

Tuesday’s after-market announcement related to the US nuclear business Westinghouse’s $229m acquisition last year of Chicago Bridge & Iron’s (CB&I) nuclear construction subsidiary, Stone & Webster. It followed a sharp fall in Toshiba’s share price, as investors digested a series of earlier Japanese media reports flagging the possibility of a large impairment charge.

The new charge arises from a litigious and still unresolved dispute between Toshiba and CB&I over the correct calculation of working capital and liability for two delayed US nuclear projects, where costs have ballooned.

“Westinghouse has found that the cost to complete the US projects will far surpass the original estimates . . . resulting in far lower asset value than originally determined, leading to a possible recognition of goodwill far exceeding the original December 2015 estimate of $87m,” said Toshiba in its statement.

The statement added that, while the company was still testing how much impairment would have to be booked, current estimates showed a level of several billion dollars.

The announcement marks the second large writedown relating to Toshiba’s stake in the US nuclear business, after it booked a goodwill impairment charge of $2.3bn earlier in the year.

Analysts said the latest writedown would raise concerns over the stability of the company’s financial position. Tokyo-based traders in credit default swaps said on Tuesday that Toshiba’s bond risk had surged by more than 50 basis points during the day, while equity analysts said the writedown — once its precise scale was revealed — could force the company to consider sales of more key assets.

If Toshiba’s capital position becomes too weak, the group is expected to rely on bank loans: it is already on the Tokyo Stock Exchange’s watchlist, preventing it from going to the equity markets to raise capital.

Analysts said there was now “real concern” that the CB&I deal had exposed flaws in Toshiba’s management system that had still not been addressed in the wake of the 2015 debacle and the replacement of many of the company’s most senior figures.

This year, Mr Tsunakawa admitted the company was “not even midway” along the path of restoring the trust of customers and markets.

Toshiba’s share price fell by as much as 16 per cent during Tuesday trading, paring a recent rally that had seen it return to pre-2015 accounting scandal levels. Mark Newman, an analyst at Bernstein who already had an “underperform” rating on the stock, said Toshiba was overvalued and the recent relief rally was overdone.

Tuesday’s announcement caps a torrid 2016 for the group, which in March logged one of the biggest ever operating losses by a Japanese manufacturer (¥708bn) and, three months later, was sued for damages by Japan’s Government Pension Investment Fund over the 2015 accounting scandal.

Via FT