January 19, 2017 1:30 am JST
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Toshiba's nuclear loss could top $4.4bn

Ballooning costs leave Japanese company turning to public lender for support

A Toshiba chip fabrication facility in Yokkaichi, Japan. Toshiba may spin off its chip business to offset mounting losses on its nuclear operations.

TOKYO -- Toshiba's losses in its nuclear power business could exceed 500 billion yen ($4.4 billion), according to the latest estimates, forcing the beleaguered Japanese conglomerate to seek support from a government-backed lender.

The losses stem from a goodwill impairment on CB&I Stone & Webster, a U.S.-based nuclear plant builder acquired by Toshiba subsidiary Westinghouse Electric in late 2015. Stone & Webster saw domestic construction and labor costs swell beyond what had been expected at the time of the purchase.

Goodwill from the deal was initially estimated at about $87 million, or roughly 10.5 billion yen. After the additional costs came to light, Toshiba released a statement last month estimating goodwill at hundreds of billions of yen. It told financial institutions that it saw the total at 500 billion yen at most.

After assessing the cost overruns, however, the company apparently recently raised the possibility that the losses could run from 400 billion yen to more than 500 billion yen. It is currently working with its auditor to determine how much of that amount should be reflected in earnings for the fiscal year ending in March.

Toshiba's November forecast showed full-year group net profit rebounding to 145 billion yen, up from a 460 billion yen loss the previous year. A strong showing by the mainstay flash-memory business had made an overshoot a real possibility. But the nuclear-related write-down will likely leave the company in the red again.

The electronics giant's capital totaled just over 360 billion yen as of the end of September. Without the losses, this could have jumped to around 500 billion yen at fiscal year-end, amid a recovery in core operations as well as a softer yen boosting the value of foreign-currency-denominated assets. The write-down will undoubtedly deplete much of Toshiba's capital, leaving the company with an urgent need for more funds.

The Tokyo Stock Exchange placed Toshiba on its watch list in the wake of a 2015 accounting scandal, a status intended to warn investors about poor internal controls. This makes it tougher to raise money through a public offering.

Sources say Toshiba is considering such options as offering preferred stock without voting rights or issuing subordinated debt, which would partially count toward its capital base. It has apparently asked the government-owned Development Bank of Japan for support. Toshiba is expected to outline the losses to lenders soon, at which time it will likely seek assistance with fundraising.

The nuclear-related losses, coming on top of the fallout of the accounting scandal, have put pressure on Toshiba to restructure its businesses. The company is considering spinning off its semiconductor operations, including flash memory, and is in talks with U.S. hard-drive maker Western Digital and investment funds about selling a partial stake. A radical reworking of the nuclear business is needed as well.

(Nikkei)

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