Toshiba's finances on track to regain pre-crisis levels
Successful Westinghouse equity sale could add $1.8bn to net worth
HIROTO TANAKA, Nikkei staff writer
TOKYO -- Toshiba's net worth appears headed for heights not seen since before its current wave of troubles began, as a major asset sale seems likely to materialize in time for the fiscal year's end.
"Prospects are looking bright" for the Japanese industrial conglomerate to sell its equity stake in Westinghouse Electric -- its now-bankrupt U.S. nuclear power unit -- by the end of this month, a Toshiba-affiliated source said at the end of February.
A successful sale could tack another 200 billion yen ($1.88 billion) onto the company's net worth, which Toshiba projected at 460 billion yen for the end of March in third-quarter earnings released Feb. 14. That would bring the shareholder's equity ratio to 16.1% -- close to the 17.1% it had for the year through March 2015, the year before an accounting scandal came to light, inflicting a wound that huge losses at Westinghouse then deepened.
Toshiba had previously expected its net worth to sink deeper into the red to minus 750 billion yen. After finishing last fiscal year with debts in excess of assets, the company's shares would automatically be delisted from the Tokyo Stock Exchange if it failed to resolve its negative net worth by the end of the present fiscal year.
Westinghouse, which Toshiba purchased in 2006 for $5.4 billion, filed for bankruptcy protection in U.S. federal court in March 2017. The Japanese parent effectively relinquished control over Westinghouse and removed it from its consolidated balance sheets, while retaining an equity stake and claims against the unit. It sold those claims in January.
Japanese tax law would let Toshiba record a loss on the sale of its Westinghouse stake, thus reducing its tax burden. Management has hurried to put the loss on the books after the conglomerate incurred roughly 340 billion yen in tax charges this fiscal year from the separation and sale of its memory unit -- part of an effort to resolve its negative net worth.
The conglomerate is in talks with Canadian asset manager Brookfield -- which recently signed a deal to acquire Westinghouse -- to sell the equity stake for a price of just $1, which would hand Toshiba a loss of about 640 billion yen. Based on Toshiba's effective tax rate of 30.9%, that would amount to a reduction in taxable income of just under 200 billion yen, potentially pushing full-year net profit beyond the February forecast of 520 billion yen.
A round of fundraising last year factored into Toshiba's net equity forecast from February, as did the recent sale of its television business and of its Westinghouse claims. But on top of the potential boost from selling the Westinghouse equity stake, Toshiba stands to reap an after-tax profit of about 1.08 trillion yen from the sale of its memory unit Toshiba Memory. That could leave it with a record-high net worth of around 1.7 trillion yen by the end of this month.
The rapid improvement in Toshiba's finances has already led some ratings companies to upgrade its debt. Some major lenders are also considering raising their assessments of loans to the conglomerate.
But there has been another unexpected side effect. A Hong Kong investment fund with a stake in Toshiba recently sent the company a letter urging it not to sell the memory unit after all, and another activist investor that came aboard through the Japanese company's recent fundraising likewise has told management it should reconsider.
Toshiba is in no position to call off the sale, however. Despite its growing net worth, the company remains strapped for cash. Core businesses including energy and infrastructure fail to generate much in the way of funds, and restoring a positive free cash flow looks to be a difficult task. Hence, the goal of selling the memory unit by March's end stands.