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Toshiba in Turmoil

Toshiba's lenders see improved outlook for struggling company

Large banks assume bigger role as smaller peers cut their exposure

TOKYO -- The major Japanese banks that shoulder a growing share of lending to Toshiba may upgrade their internal ratings of the troubled technology company in a reflection of its progress back toward financial health, but doubts surrounding plans to sell its memory chip unit are a source of concern.

Top two lenders Sumitomo Mitsui Banking and Mizuho Bank held around 210 billion yen ($1.92 billion) each in outstanding loans to Toshiba as of Dec. 31, and Sumitomo Mitsui Trust Bank held about 135 billion yen. The combined figure accounts for 62% of the overall 900 billion yen in loans owed by Toshiba, a share that grew by 16 percentage points over 2017's last three months. The trio's outstanding lending grew by 220 billion yen over that period, as Toshiba tapped 680 billion yen in credit lines to secure necessary funding at the end of the year.

The Tokyo-based company's top seven lenders accounted for 82% of total outstanding lending to Toshiba as of Dec. 31.

Meanwhile, regional banks have been pulling back as lenders to the conglomerate,  especially since last year after the company fell into negative net worth in late 2016. With little demand for funding in their local markets, these lenders had once considered Toshiba -- which operated factories across Japan -- a prime borrower. That all changed when the company's problems surfaced, and regional banks accounted for just 3% of outstanding loans to Toshiba as of Dec. 31, down from 15% a year earlier.

The Bank of Yokohama slashed its outstanding lending by more than 70%, while Chiba Bank, Bank of Fukuoka and Chugoku Bank also reduced their exposures. A syndicate involving multiple regional banks apparently turned down a request from Toshiba to roll over its lending near the end of the year.

Life insurers, which focus on longer-term loans of 10 years or so, have not seen a change in their outstanding lending because maturities have not come due yet. Dai-ichi Life Insurance, Nippon Life Insurance and three others have lent a combined 80 billion yen to Toshiba.

But the main lenders are now considering hiking their Toshiba ratings after it raised 600 billion yen in fresh capital in December via a private placement involving an array of overseas investors. Toshiba also sold claims against former U.S. unit Westinghouse Electric in January, paving the way for the Japanese company to emerge  from negative net worth by March. The ratings upgrades would boost the lenders' earnings, because loss provisions booked in the past would then be freed up.

The biggest remaining concern for Toshiba is over the planned sale of Toshiba Memory, which the parent aims to complete by the end of March. Antitrust screening in China is the most critical challenge.

Some of the foreign investment funds that became Toshiba shareholders in the third-party offering are demanding that the sale be canceled because of the improved financial standing. But nixing the sale could push lenders to withdraw credit lines premised on it. Toshiba is facing the difficult task of satisfying both fussy shareholders and cautious lenders.

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