MUFG signals caution on new Toshiba aid
Company's main lenders make loan-loss provisions while maintaining borrower rating
TOKYO -- Toshiba's prospects of securing additional credit look a little dimmer after Mitsubishi UFJ Financial Group downgraded the troubled company on a borrower risk scale, putting itself out of step with other big lenders.
The Tokyo-based megabank cut the Japanese conglomerate's rating to "requiring supervision," becoming the first of its major lenders to take such a step. Japan's Financial Services Agency considers debt at or beyond this point to be nonperforming, although on the banks' scale, it is only half a step down from "requiring attention," which still falls within the range of performing loans.
Accounting rules require lenders to set aside substantial reserves against losses on any new financing to companies rated as "requiring supervision," though existing loans need not be called. MUFG may decline to contribute to the roughly 300 billion yen ($2.67 billion) in additional credit lines being sought by Toshiba.
Toshiba's "main banks" -- Mizuho Bank, Sumitomo Mitsui Banking Corp. and Sumitomo Mitsui Trust Bank -- still classify the company as a borrower "requiring attention." The three lenders belong to Mizuho Financial Group, Sumitomo Mitsui Financial Group and Sumitomo Mitsui Trust Holdings, respectively.
In conjunction with the downgrade, MUFG is expected to book a roughly 70 billion yen charge for the year ended March 31 as a loan-loss provision. This is seen as having a limited impact on annual earnings, as it amounts to less than 10% of projected net profit. Though not one of Toshiba's main banks, its outstanding loans to the conglomerate from units Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Trust and Banking added up to about 160 billion yen at the end of March -- more than the roughly 120 billion yen outstanding from Sumitomo Mitsui Trust Bank.
In Japan, main banks customarily take special responsibility for aiding clients that land in dire financial straits. This makes it difficult for them simply to downgrade a borrower's status, since even the appearance of a loss of ready access to new credit would send a ominous message about an already-troubled business. MUFG, being a major but not main lender to Toshiba, is free to make a more conservative assessment.
That said, Toshiba's main banks have apparently deemed it necessary to take similar measures. Sumitomo Mitsui Trust Holdings on Friday cut its group net profit estimate for the just-ended fiscal year by about 50 billion yen owing to provisions made with respect to a specific borrower -- i.e., Toshiba.
The other two main lenders each had nearly 180 billion yen in outstanding loans to Toshiba as of the end of March. Both have compromised by keeping Toshiba classified as a normal borrower while making loan-loss provisions as if it were a troubled one.
A major reason why most Toshiba creditors have not downgraded the company is the planned sale of its memory chip business. If the unit fetches 2 trillion yen or so, Toshiba can lift its net worth back into the black. But a failed sale could deepen banks' concerns about collecting on loans to the company.
Toshiba's continuing dispute with its auditor is another issue. If the company releases fiscal 2016 earnings without its auditor's stamp of approval, it will face a real risk of delisting.