Legal row over chip unit risks derailing Toshiba's financing
Banks sock away nearly $2bn against losses on loans to Japanese group
TOKYO -- Should Western Digital's request to block the planned sale of Toshiba's memory unit succeed, the eventual turnaround on which lending to the Japanese conglomerate rests would be thrown into question.
Top officials at Toshiba's main banks, which released fiscal 2016 earnings Monday, expressed concern about the dispute. "We want the two companies to work to resolve the problem and [Toshiba] to firm up its financial foundation by selling" Toshiba Memory shares, said Sumitomo Mitsui Financial Group President Takeshi Kunibe.
Lenders agreed just last month to roll over syndicated financing in exchange for collateral including Toshiba Memory stock. U.S.-based Western Digital's opposition to the use of shares in the memory unit for this purpose has left Toshiba unable to draw on credit facilities.
The Tokyo-based company has told financial institutions it needs up to 1 trillion yen ($8.79 billion) in additional financing this fiscal year for capital spending and loan repayments. Its main banks have extended nearly 700 billion yen in new credit lines and seriously considered offering more. Toshiba risks becoming strapped for cash if it remains blocked from tapping this financing. Some banks are looking at alternatives such as letting the company access funds without collateral.
The syndicate looks unlikely to fall apart in the short term. Mizuho Financial Group remains committed to supporting Toshiba, President Yasuhiro Sato said, calling the conglomerate "a company that's important to Japan."
But banks are not sanguine about its outlook. Five major banking groups have set aside reserves totaling roughly 220 billion yen against losses on loans to Toshiba. Lenders have downgraded the company one rung on a borrower risk assessment scale, while Mitsubishi UFJ Financial Group lowered it another half step to a subcategory indicating particular concern. Lenders will be paying close attention to negotiations between Toshiba and Western Digital.