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Toshiba may put these offices up as loan collateral.
Toshiba in turmoil

Toshiba board greenlights Westinghouse bankruptcy plan

Parent's stock jumps in morning; US nuclear unit's debt still looms

TOKYO -- Toshiba's board on Wednesday morning approved plans for American nuclear unit Westinghouse Electric to file for bankruptcy protection in the U.S. -- a step the battered Japanese conglomerate hopes will open a path to recovery.

Shares in Toshiba had fallen in early trading but jumped on the news, rising as much as 2% on the day to 221.60 yen.

Westinghouse's acquisition of a nuclear construction services company in late 2015 led to huge cost overruns and other problems that proved too much to bear. The Chapter 11 filing would take Westinghouse off Toshiba's consolidated books, and would likely shrink significantly the 712.5 billion yen ($6.45 billion) loss the parent had been expected to book in connection with Westinghouse's acquisition.

Toshiba intends to make infrastructure its core business after cutting Westinghouse loose.

Still, the Japanese company has guaranteed 800 billion yen worth of Westinghouse debt, which it has pledged to cover in full. Coupled with additional costs, such as breach-of-contract penalties and provisions for the risk of future losses, Toshiba's burden could rise to around 1 trillion yen, according to some estimates.

The Westinghouse filing is unlikely to prevent Toshiba from ending fiscal 2016 -- the year through March -- in negative net worth. Toshiba is bracing for this by preparing to sell majority stakes in its semiconductor business, as well as lining up several hundred billion yen in loans from a bank syndicate.

"Toshiba's decision likely stems from its thinking that there are big merits in limiting the risk of future loss expansion ... and increasing the possibility of continued financing from financial institutions," said Toshiyasu Ohashi, chief credit analyst at Daiwa Securities.

"[But] applying for bankruptcy comes with the risk of additional expenses, including the fulfillment of the parent company's guarantee," Ohashi added, noting that at this point, "there is no material outsiders can use to objectively judge whether the pros outweigh the cons."

Toshiba bought a 77% stake in Westinghouse in 2006 from British nuclear energy and fuels company BNFL for 490 billion yen. It later raised its interest to 87%.

Even after the March 2011 meltdowns at the Fukushima Dai-ichi nuclear power plant in Japan, as well as an accounting scandal in 2015 and subsequent restructuring measures, Toshiba continued to see the nuclear business as the core of its rebuilding strategy. It hoped to use Westinghouse's cutting-edge technology to win new international orders.

But Westinghouse's nuclear construction operations have been mired in the red, suffering from project delays tied to tighter regulations. While its nuclear fuel and nuclear-related services businesses are robust, it incurred huge losses on its acquisition of nuclear construction services company CB&I Stone & Webster. The U.S. nuclear woes ultimately threw Toshiba into crisis.

Speaking at a press conference, Japan's chief cabinet secretary Yoshihide Suga said that "both the governments of Japan and the U.S. are cooperating closely [on Westinghouse's Chapter 11 filing]." An unnamed U.S. government official had expressed concerns on the matter earlier in the day, saying that the possible bankruptcy of Westinghouse is a "concern" for President Donald Trump's administration and a potential national security issue, according to the Reuters.  

NQN staff wirter Nanako Murata contributed to this story.

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