TOKYO The recent bankruptcy filing by U.S. nuclear unit Westinghouse Electric may have extricated Toshiba from one major mess. Yet it has also put the crisis-battered electronics maker in a deeper financial hole, complicating its turnaround efforts.
Toshiba President Satoshi Tsunakawa on March 29 told reporters that Westinghouse's Chapter 11 filing will take the company out of the nuclear business overseas, "eliminating the biggest risk we face."
The most significant impact of the filing is the removal of Westinghouse from Toshiba's consolidated accounts, starting with the fiscal year that ended on March 31. Though the Japanese company currently owns 87% of Westinghouse, the bankruptcy moves the U.S. subsidiary under court supervision and out of Toshiba's control, Chief Financial Officer Masayoshi Hirata explained.
Toshiba acquired Westinghouse in 2006, amid talk of a "nuclear renaissance." The American company handled nearly all of the group's foreign nuclear operations and served as the driving force behind the world's largest alliance of nuclear equipment manufacturers, supplying 112 reactors in just over a decade.
But everything changed after the 2011 Fukushima Dai-ichi nuclear disaster. Toshiba's big bet on atomic energy backfired, as Tsunakawa acknowledged. The company suffered ever-widening losses on Westinghouse projects in the U.S.
LOSSES OUTWEIGH GAINS Cutting Westinghouse loose should improve earnings by around 350 billion yen ($3.14 billion). The maneuver lets the conglomerate off the hook for future reactor construction costs, in addition to reducing valuation losses on foreign-currency-denominated assets. But that is not the full story.
Toshiba will still be responsible for guaranteeing roughly 650 billion yen worth of Westinghouse debt if nuclear projects are delayed due to the bankruptcy filing. It also needs to set aside about 170 billion yen in loan-loss provisions in case loans to Westinghouse prove unrecoverable.
The industrial group said it could end up with a net loss exceeding 1 trillion yen for fiscal 2016, as a result of the filing. Shareholders' equity, initially projected to fall to negative 150 billion yen at the end of March, is seen worsening further to negative 620 billion yen.
Toshiba is counting on the sale of its memory chip operations to plug this hole. The sharper-than-expected deterioration in the company's finances makes it all the more crucial that the business fetch a high price. After taking taxes into account, Toshiba will need to earn about 1 trillion yen from the sale to bring its net worth out of the red.
Given the unit's net assets are worth an estimated 500 billion yen to 600 billion yen, the business will need to go for roughly 1.5 trillion yen for Toshiba to net 1 trillion yen. The company has received an array of bids that should return its net worth to positive territory, Tsunakawa said.