TOKYO -- Growing mistrust and frustration among regional banks is adding another layer of uncertainty to Toshiba's future, as smaller lenders protest what they see as favorable treatment of major banks, forcing the company to redraw its refinancing timetable.
Toshiba, in the midst of a deep financial crisis, has offered creditors fresh collateral as an incentive to roll over existing lines of credit.
The Tokyo-based company's plan would put up shares in Toshiba Memory, a new unit to be created from its profitable semiconductor memory operations, to secure some 680 billion yen ($6.16 billion) in financing from leading lenders such as Sumitomo Mitsui Banking Corp. and Mizuho Bank. Regional banks and other lenders, which together provide 618 billion yen in financing, would be offered such assets as shares in other Toshiba group companies and real estate.
But smaller banks blasted the proposal at an information session on March 15, calling the arrangement unfair and accusing the company of trying to tamp down criticism.
"We don't know whether real estate will be properly valued," a source at one regional bank said. Others voiced concerns that larger banks could also be granted priority when loan payments come due and argued it would be unfair to offer Toshiba Memory shares to only major lenders.
According to Toshiba, real estate and shares in listed companies are easier to price than shares in the memory unit. The parent aims to unload a majority stake in Toshiba Memory through an ongoing bidding process, making much about the unit's value uncertain. But smaller lenders still feel they are getting the short end of the stick.
Off the rails
Regional banks' distrust of the conglomerate has grown steadily over the past three months or so. When large losses on U.S. nuclear unit Westinghouse Electric were revealed at the end of last year, major banks were given the details more quickly than their regional counterparts. Now, that unit is poised to file for bankruptcy protection in the U.S., threatening to drive losses initially pegged at 500 billion yen or so up to around 1 trillion yen -- hardly cause for comfort.
"Under ordinary circumstances, the smallest banks should be paid back first," the head of one regional bank in the Tokyo area said. But the new collateral plan makes it look "like they're only helping out major lenders -- they're playing us for fools."
A successful turnaround rests on the lenders sticking together and keeping Toshiba solvent. But as distrust within that group builds, cracks are beginning to appear.
Toshiba had asked creditors to respond to the proposal for the fresh collateral by last Friday, aiming to put the plan into action by the end of March. The company has since extended the response window and intends to make a fresh start on the plan in April or later. Lenders providing Toshiba with syndicated loans have been asked to reply by April 11, rather than Thursday as before, whether they will continue to provide support through the end of that month.