Toshiba Partners Brace for Possible Bankruptcy Filing
May 09 2017 - 5:19AM
Dow Jones News
By Takashi Mochizuki, Mayumi Negishi and Kosaku Narioka
TOKYO-- Toshiba Corp.'s business partners are preparing for a
scenario in which the company seeks to reorganize under Japanese
bankruptcy laws, with consequences for the global nuclear-power and
electronics industries.
Toshiba last month expressed "substantial doubt" about its
"ability to continue as a going concern." The company said it
expected to record a net loss of some Yen1 trillion ($8.83 billion)
for the year ended March 2017 following the chapter 11 bankruptcy
filing by Toshiba's U.S. nuclear unit, Westinghouse Electric
Co.
Atlanta-based utility Southern Co., which hired Westinghouse to
build two nuclear reactors in Georgia, is concerned that Toshiba
will apply for protection from creditors and relieve itself of the
guarantees made on Westinghouse's behalf, said people familiar with
Southern's thinking. Toshiba says it doesn't plan to.
Southern Chief Executive Thomas A. Fanning said in an interview
May 3 that the utility is owed $3.7 billion by Toshiba and wants to
be paid whether or not the reactors are built.
A Toshiba spokeswoman declined to comment on Mr. Fanning's
statements. The company has said that it guaranteed some $6 billion
in obligations incurred by Westinghouse when it promised to
complete the reactors.
Sumitomo Mitsui Trust Holdings Inc. said April 28 its core
banking unit, a lender to Toshiba, was beefing up reserves by Yen15
billion ($132 million) to address the worsening credit of "certain
borrowers"--one being Toshiba, Japanese media reported. A bank
spokesman declined to comment.
The Westinghouse guarantees are among several costly promises
Toshiba has made. It has agreed to pay for natural-gas liquefaction
at a Texas plant for 20 years starting in September 2019. Toshiba
has said the commitment could cost Yen1 trillion, although it is
likely to recover some or all of the money by selling the liquefied
gas.
Western Digital Corp., which jointly owns a flash-memory
semiconductor plant in Japan with Toshiba, says the Japanese
company promised not to sell its stake unless Western Digital
approves. Toshiba denies this, and sent a letter to Western Digital
threatening to sue unless Western Digital drops its assertion.
Western Digital couldn't be reached immediately for comment.
The disagreement has made it harder for Toshiba to sell its
flash-memory business, which is the core of its survival plan.
One Toshiba official said the best way to save the company could
be a filing under Japan's corporate-reorganization law, which is
similar to U.S. bankruptcy law's chapter 11 in that it seeks to
allow a company to stay in business by relieving it of some
obligations.
This official said a corporate-reorganization filing would free
the company from its "fetters," including the Westinghouse
obligations, and pave the way for the "new Toshiba" that Chief
Executive Satoshi Tsunakawa has said he wants to build after
scandals that include years of overstating financial results.
"At this moment, we do not have any thought or intention of
seeking protection under corporate-reorganization proceedings," a
Toshiba spokesman said.
Toshiba has been consulting with Industrial Growth Platform
Inc., a company that specializes in corporate rehabilitations, on
the best way forward, two people familiar with the matter said. A
spokesman for Industrial Growth Platform declined to comment.
A Japanese chapter 11-style filing is only one of several
scenarios Toshiba could choose. It presents several downsides:
Suppliers could take a hit, hurting the broader economy, and
shareholders could be wiped out--though Toshiba's shares are
already in danger of being delisted in Tokyo because of accounting
problems that emerged in 2015.
But the filing would strengthen Toshiba's balance sheet and
could allow it to keep its profitable memory-chip business, the
Toshiba official said--relieving Japanese government concerns about
technology leaks to Chinese or other competitors.
A person familiar with Southern's thinking said Japanese
creditor banks have significant leverage in deciding what to do
with Toshiba, and that their loans would come ahead of other
obligations. "We are not first in line," this person said.
Hiroshige Seko, Japan's minister of economy, trade and industry,
has said the government is watching developments at Toshiba and has
pointed to the importance of its chip and nuclear-power technology.
However, he has said Toshiba's problems are for its stakeholders to
sort out. A spokeswoman at the ministry declined to comment.
Write to Takashi Mochizuki at takashi.mochizuki@wsj.com, Mayumi
Negishi at mayumi.negishi@wsj.com and Kosaku Narioka at
kosaku.narioka@wsj.com
(END) Dow Jones Newswires
May 09, 2017 05:04 ET (09:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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