TOKYO -- As a row with partner Western Digital blocks Toshiba from access to vital credit, banks committed to supporting the embattled conglomerate are pondering an unusual workaround.
Toshiba secured continued financing at a mid-April meeting with creditor banks by offering collateral including shares in its spun-off memory chip subsidiary. But U.S. chipmaker Western Digital, which contends that Toshiba's planned sale of a majority stake in the unit without its consent violates joint venture agreements, also objects to this use of the shares. This has left the Japanese group unable to tap nearly 700 billion yen ($6.3 billion) in credit lines, a senior official at a major bank said.
Some of Toshiba's main lenders -- which include Sumitomo Mitsui Banking Corp. and Mizuho Bank -- are considering an arrangement that could allow Toshiba to access this credit, according to a person familiar with the proposal. In exchange for continued financing, the banks would stipulate that Toshiba leave its share certificate in their custody -- an arrangement that would have the "same effect as posting actual collateral," this person said.
Some institutions have voiced reluctance on this proposal, however, and it remains unclear whether Toshiba's main banks can reach a consensus. In Japan, the term main bank denotes a lender that maintains a close relationship with and supports a corporate client when it falls on hard times.
That the situation has reached this point owes partly to a miscalculation by the banks. Their continued financing of Toshiba -- despite liabilities that exceeded assets by 540 billion yen at the end of fiscal 2016 -- rested on the assumption that the planned sale of the memory unit would fix the hole in the group's shareholder equity. Estimates have valued Toshiba Memory at up to 2 trillion yen.
The impasse with Western Digital could prevent Toshiba from completing the sale by the end of the current fiscal year next March. If so, not only would Toshiba be at greater risk of delisting due to two straight fiscal years of negative net worth, but the basis for lenders' support could be called into question as well.
Five major banking groups made provisions against losses on loans to Toshiba totaling about 220 billion yen last fiscal year. They may be forced to add to this cushion if the sale of the memory business stalls.