April 15, 2017 5:45 am JST

Smaller banks break ranks on Toshiba financing

Funding outlook hazy as regional lenders scale back loans

TOKYO -- Though a group of creditors informed Toshiba on Friday that they will roll over syndicated financing coming due this month, some regional banks reportedly refused to cooperate, creating uncertainty over the conglomerate's future funding.

The syndicate's total outstanding loans to Toshiba dropped below 1 trillion yen ($9.21 billion) at the end of March, marking a roughly 100 billion yen decline in three months.

The total had risen from 798.5 billion yen in September to 1.04 trillion yen in December. Three key lenders -- Sumitomo Mitsui Banking Corp., Mizuho Bank and Sumitomo Mitsui Trust Bank -- increased financing to Toshiba after massive losses in its U.S. nuclear operations came to light in late December. Existing credit facilities were likely tapped to ensure continued access to funding.

But then Toshiba failed to release earnings for the April-December period for two months, prompting banks to suspend screening for new financing. The company announced results this week without auditor approval.

As loans came due, some regional banks opted not to renew them. One leading regional lender cited a violation of its loan contract with Toshiba. Eleven regional banks lowered their outstanding balances to zero, while six others and six major lenders reduced balances, syndicate documents show.

Banks' internal regulations stipulate that borrowers that release earnings without an auditor's seal of approval must be downgraded on their risk-assessment scale as requiring attention. A number of banks had done so earlier with Toshiba in anticipation of such a possibility. The additional reserves these lenders needed to hold in case the conglomerate's loans turned sour amounted to only billions of yen for even megabanks -- not enough to weigh substantially on profit.

But Toshiba's inability to release audited earnings has changed the situation, said one major bank, which is considering lowering the company another rung. Doing so would require treating Toshiba's debt as nonperforming, resulting in losses that could reach some 100 billion yen for big banks.

Lenders are for the most part not scrambling to recover their money by demanding early repayment or reducing Toshiba's available credit. Banks that refused to renew loans have indicated that they want to keep supporting the company but cannot do anything without seeing full-year results, leaving the question of future funding up in the air.

(Nikkei)

Toshiba Corp.

Japan

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