Toshiba may book billions in losses on US nuclear unit

Big losses would be another slap in the face for Toshiba, which is hoping to recover from a US$1.3 billion (S$1.88 billion) accounting scandal and a writedown of more than US$2 billion for its nuclear business in the last financial year
Big losses would be another slap in the face for Toshiba, which is hoping to recover from a US$1.3 billion (S$1.88 billion) accounting scandal and a writedown of more than US$2 billion for its nuclear business in the last financial year. PHOTO: REUTERS

Cost overruns will be bigger than expected; stock plummets 12%

TOKYO • Toshiba Corp said yesterday it may have to book several billion dollars in losses related to a US nuclear power acquisition, a shock warning that sent its stock tumbling 12 per cent and rekindled concerns about its accounting acumen.

The Japanese group said cost overruns at United States power projects handled by a nuclear construction business newly acquired from Chicago Bridge & Iron (CB&I) would be much greater than initially expected, potentially requiring a huge writedown.

Big losses would be another slap in the face for a sprawling conglomerate hoping to recover from a US$1.3 billion (S$1.88 billion) accounting scandal as well as a writedown of more than US$2 billion for its nuclear business in the last financial year.

Mr Tom O'Sullivan, a former investment banker and founder of energy consultancy Mathyos Japan, noted the acquisition coincided with the finalising of a record fine by Japanese regulators for accounting irregularities at Toshiba.

"This indicates that corporate governance controls at one of Japan's largest and most consequential companies may have been extremely weak," he said, adding that the developments may further undermine confidence in Toshiba and significantly weaken its international nuclear credentials.

Clashing over who should shoulder potential liabilities related to cost overruns and over calculations for working capital for the unit, CB&I sued Toshiba's Westinghouse division after Westinghouse said it was owed more than US$2 billion.

Shares in Toshiba, which remains on the Tokyo bourse's watchlist due to concerns about the firms' internal controls, finished 12 per cent lower after the company flagged the announcement earlier in the day.

Toshiba, led by new chief executive Satoshi Tsunakawa, has positioned its nuclear and semiconductor businesses as key pillars of growth while seeking to scale down less profitable consumer electronics units such as PCs and TV sets.

It has forecast a full-year net profit of about 145 billion yen (S$1.8 billion) this financial year, a turnaround from a 460 billion yen loss, on demand for flash memory chips from Chinese smartphone makers.

But any big losses are likely to force Toshiba to boost a capital base that has been weakened by a range of restructuring steps taken in the wake of the accounting scandal.

As of the end of September, Toshiba had shareholders' equity of 363 billion yen, or just 7.5 per cent of assets, which could fall close to zero if the company is forced to log significant losses.

Mr Tsunakawa, who took the helm in June, has pledged to rebuild trust in the firm and has said he would prioritise beefing up Toshiba's capital base.

Mr Masahiko Ishino, an analyst at Tokai Tokyo Research Centre, said the focus may soon shift to whether Toshiba will divest some of its businesses if the latest loss wipes out its shareholders' equity.

"There will be a lot of companies that want to buy Toshiba's businesses," he said. "It is possible that its Nand flash memory business would attract various buyout offers as there are few players in the market."

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 28, 2016, with the headline 'Toshiba may book billions in losses on US nuclear unit'. Print Edition | Subscribe