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Toshiba accelerates debt repayment as finances improve

The move gives company more freedom over memory sale as banks lose sway

Chinese antitrust regulators are still reviewing the proposed sale of Toshiba Memory. (Photo by Takuya Imai)

TOKYO -- Toshiba is quickly paying down its debt, diminishing the influence of lenders who want a quick sale of its memory unit to a group led by U.S. buyout firm Bain Capital and fueling speculation that the company may consider a different route on the sale.

Toshiba repaid more than 40% of the debt owed to banks in a single quarter. At the end of 2017, Toshiba owed more than 900 billion yen ($8.23 billion) to six principal lenders. That figure shrunk to around 500 billion yen as of the end of March. The money owed to main lenders Sumitomo Mitsui Banking Corp. and Mizuho Bank stood at 80 billion yen each in March, plunging by 60% over the three months. The amount owed to the other four banks dropped as well.

Toshiba has improved its cash position. Earnings at the crown-jewel memory operation have climbed in a healthy market, and Toshiba was collecting more payments on public works projects orders through the end of last fiscal year. The company appears to be using the cash to pay off debt.

After being rocked by an accounting scandal, then by the bankruptcy of its former U.S. nuclear subsidiary Westinghouse Electric, Toshiba is on its way to putting its shaky house back in order. The private placement of 600 billion yen in new shares last December -- many of them to non-Japanese equity funds -- restored the group's shareholders' equity ratio.

Meanwhile, Toshiba's main lenders decreased their committed line of credit from 680 billion yen to 400 billion yen as of April.

The six banks, including Sumitomo Mitsui Trust Bank and MUFG Bank, the new name of Mitsubishi UFJ Financial Group's banking unit, wielded an outsized influence over Toshiba's business decisions through their financial support. It was the lenders who recommended that the group spin off and sell what would become Toshiba Memory to fill the equity hole caused by the Westinghouse losses.

When Toshiba continued to dither in choosing the buyer for the memory unit, the banks stepped in last September and drew a hard deadline to strike a deal.

Now that Toshiba has paid back nearly half of what it owes, the banks may find themselves with less sway over the company. That could affect Toshiba's decision on the memory unit sale. Although an international consortium led by Bain Capital, the American buyout firm, agreed to acquire the unit for 2 trillion yen, the transaction is subject to an ongoing antitrust review in China. It is unclear if the audit will be completed by the expected due date of May 28.

A Plan-B proposal has emerged within Toshiba's ranks in which the company gives up on the sale and instead launches a separate initial public offering of Toshiba Memory.

"The sale going according to schedule is the main story," said an executive at a major bank, indicating that Toshiba's main lenders will continue to push for the purchase by the Bain consortium.

Toshiba's funding demand "is not going to fall at this rate," said a source close to the matter. But that view does not rule out the possibility that Toshiba may become less reliant on the banks if it continues to improve earnings.

December's equity issue means that foreign equity funds have become Toshiba's new major shareholders. Some of those funds are criticizing the Toshiba Memory deal as unreasonably underpriced. This added wrinkle could complicate future debates among stakeholders over the company's business decisions.

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