Shares in Toshiba sank by their daily limit of 20 per cent on Wednesday morning as investors scrambled to reassess the company’s financial stability and questioned the future of one of Japan’s most celebrated industrial names.
The stock plunge followed Toshiba’s warning to the market the previous evening that it could book multibillion-dollar impairment losses on part of its Westinghouse nuclear business in the US – a key engine for the company’s efforts to revive its fortunes after a $1.3bn accounting scandal last year.
The scale of the potential impairment loss could be at least as large as the $2.3bn writedown Toshiba took on its nuclear business earlier this year, and threatens to derail efforts by the company’s new chief executive, Satoshi Tsunakawa, to rebuild market trust.
Before the company formally announced its need for a writedown amounting to “several billions of dollars”, its stock closed 12 per cent lower on Tuesday on the heels of local media reports that a fresh crisis was looming.
As the depth of market scepticism became clear on Wednesday morning, analysts and investors began to question what shape Toshiba might take as it attempted to address its problems. The company acknowledged on Tuesday that it may reconsider the future of its nuclear business, and some speculate that a possible Toshiba’s restructuring could even involve the sale of its flagship Nand memory business.
This company, along with a lot of Japanese companies, is not out of the woods on corporate governance
The risk, acknowledged by the company itself in a press conference on Tuesday night, lies in the damage this latest writedown will do to Toshiba’s already weak financial position and low shareholder equity levels.
“We would have needed to boost our capital base anyway because our shareholders’ equity ratio is low,” Mr Tsunakawa told media. Toshiba is expected to turn to its main banks — Sumitomo Mitsui Financial Group and Mizuho Financial Group — for support once the exact scale of the impairment loss is calculated.
Although this latest blow is being cast as a one-off problem, analysts at Nomura Securities warned clients that with Toshiba yet to reveal the exact size of the losses, “all the bad news is not out”.
Nevertheless, Masaya Yamasaki, an analyst who covers the stock for Nomura, maintained his “buy” rating and price target of ¥500 a share — against their price of ¥311 after the nosedive on Wednesday morning. Positives for Toshiba, he argued, include the weakening yen, stronger-than-expected performance from the core Nand memory business and a reduction in restructuring expenses.
Toshiba’s latest recalculation centres on the $229m purchase of a US nuclear construction business, Stone & Webster, by Westinghouse in 2015. Although the deal itself was small, it has lumped Toshiba with two substantial problems: massive delays and cost over-runs at two US-based nuclear projects, and a legal dispute with S&W’s vendor, Chicago Bridge & Iron (CB&I) over the level of working capital.
As well as badly tarnishing Toshiba’s corporate image and forcing the resignation of some of the company’s most senior executives, the 2015 accounting scandal laid bare a range of failures of corporate governance.
Despite a steady recovery in the shares over the course of this year, some analysts and investors have continued to question whether Toshiba has fully addressed standards of oversight and decision-making within its sprawling, internally competitive structure.
Fund managers who have previously owned Toshiba shares said the latest writedown debacle offered what one described as “a good reminder that this company, along with a lot of Japanese companies, is not out of the woods on corporate governance”.
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