TOKYO -- Toshiba is considering spinning off its mainstay memory-chip business to raise funds for capital investment in an initial public offering.
"We have no choice but to somehow move forward with work on the spinoff," President Masashi Muromachi told The Nikkei on Thursday. With the Tokyo Stock Exchange designating Toshiba as a "Security on Alert" in September after the company's accounting scandal, the Japanese conglomerate is unlikely to be able to raise money by issuing more of its shares. If Toshiba cannot finance the capital spending via loans and other means, the proceeds from the stock debut would be used.
Toshiba is the world's second-largest provider of NAND memory chips, trailing Samsung Electronics of South Korea.
In other areas, Muromachi indicated that Toshiba seeks to ink integration deals for personal computers and white goods by the end of March. "We hope to decide the partners as soon as possible," he said. These two operations may depart the Toshiba group in the process.
Muromachi said a new president should take over when the Tokyo Stock Exchange lifts the Security on Alert designation. The Tokyo bourse will re-evaluate the designation in September.
Energy sector, too
The Toshiba chief also noted in an interview that the company's energy business, positioned as a pillar of future growth, will undergo top-to-bottom reform.
Toshiba supplies power grid equipment such as transformers, batteries and switches primarily in Brazil, India and China. In India, it has bought power grid operations from a local energy company. But with fewer new projects due to slowdowns in emerging economies, Toshiba is expected to book 40 billion yen ($327 million) in impairment losses in grid and other operations in the second half of the current fiscal year.
"Deciding what to do with overseas grid operations is a task at hand," Muromachi said, noting that realignment is a must and some operations may be even jettisoned.
Meanwhile, Toshiba may seek new domestic partners in the nuclear power business. Muromachi said Toshiba will keep U.S. unit Westinghouse -- which specializes in pressurized water reactors, or PWRs -- but may seek tie-ups in boiling water reactors, or BWRs.
"We have to look for a way to not trouble Japanese power utilities," he said, referring to customers. GE-Hitachi Nuclear Energy, a joint venture between Hitachi and General Electric, is another Japanese provider of BWRs.
Investment is crucial
Toshiba cannot avoid spending big to pursue growth, making stronger finances a must. With net losses expected to swell to 550 billion yen this fiscal year, shareholders' equity is seen shrinking 60% on the year to 430 billion yen at the end of March. The equity ratio, a key financial benchmark, is seen falling below 10%.
To make the matter worse, multiple rating companies downgraded their assessments of Toshiba on Tuesday.
Toshiba for now will have to borrow funds -- it has secured credit lines totaling 760 billion yen from lenders -- and increase cash flow by streamlining and unloading businesses.
Muromachi said private placement of new shares is an option but not for the current fiscal year. The company will work to raise funds on its own first, and then consider alternatives such as public share offerings after the Security on Alert designation is removed, he said.