To Plug Nuclear Hole, Battered Toshiba is Practically Out of Easy Options

Japan’s Toshiba is running out of fixes: it is burning cash, cannot issue shares and has few easy assets left to sell, even as it is faced with the prospect of a multi-billion-dollar writedown that could wipe out its shareholders’ equity.

By announcing that cost overruns at a U.S. nuclear business bought only last year meant it could now face a crippling charge against profit, the Tokyo-based conglomerate, which is still recovering from a $1.3 billion accounting scandal in 2015, dismayed investors and lenders again this week.

Already just 7.5 percent of total assets is shareholder equity, which represents its accumulated reserves, stood at 363.2 billion yen at the end of September.

After last year’s scandal, because of restrictions imposed by the stock exchange, Toshiba cannot raise cash by issuing shares. The imminent lifting of those restrictions are now unlikely even as Toshiba had been reportedly considering a share issue of around 300 billion yen.

Months after having sold its two most easily marketable businesses: white goods and medical devices, Toshiba would likely be forced to sell off more assets and stakes, as private equity funding could be an option.

“Toshiba’s immediate problem is that it is burning cash at an alarming rate, and this will be more than challenging,” said Ken Courtis, chairman of Starfort Investment Holdings.

“I see little option but to sell a slew of non-core assets.”

While its many cross-shareholdings are unlikely to fetch enough, its loss-making PC and TV businesses would be poor candidates for sale, while its many cross-shareholdings are unlikely to fetch enough.

“Toshiba doesn’t have many saleable assets in hand,” Standard & Poor’s analyst Hiroki Shibata said after the ratings agency downgraded Toshiba.

“It has mostly sold assets which have big price tags or that could easily find buyers already. It would be difficult to secure big funds through asset sales.”

The memory chip business of Toshiba, which though highly profitable burns through cash for reinvestment, could be listed as planned earlier, said the media quoting a source in the semiconductor industry.

“Toshiba will probably need to sell 30-40 percent of the NAND business in an IPO to secure enough cash,” the source said, adding China’s aggressive drive into NAND flash memory chips could make the timing reasonable.

The group has already signaled it could trim an 87 percent stake of its nuclear business and has said it could reconsider the “positioning” of its nuclear business.

Betting on Toshiba’s growing chips business, creditor banks are expected to step into the liquidity breach for now. Two of the banking sources have reportedly told the media that some bankers had been on a factory tour with Toshiba on the day before the announcement.

Two days later, asking for help were Tooshiba’s top executives, including Chief Executive Satoshi Tsunakawa.

“We really need a proper explanation of how, and to what extent, President Tsunakawa came to know of this,” said an executive at one of Toshiba’s regular bankers.

“It just defies common sense that this would come out only now about a deal done a year ago.”

Thanks to strong demand for its NAND flash memory chips, just last month, Toshiba raised its annual profit forecast.

Bankers and analysts said the latest shock could force Toshiba to offload some cross-shareholdings and should at least push Toshiba to resolve long-standing headaches like its poor disclosure and governance.

(Adapted from Reuters)

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