Toshiba Corp will on Tuesday detail a write-down of close to $6 billion after bruising cost overruns at its U.S. nuclear arm, turning investor attention to the Japanese group's efforts to fix that and other balance sheet headaches.
The TVs-to-construction conglomerate warned of a potential multi-billion dollar nuclear writedown in December, a year after a $1.3 billion accounting scandal.
Sources familiar with the matter say the final charge, to be detailed alongside quarterly earnings, will be as high as 700 billion yen ($6.2 billion), a sum which alone would wipe out the company's shareholder equity.
Toshiba, which has seen its market value almost halve since the prospect of a writedown emerged in December, is also expected to outline the prospects for its nuclear arm and update investors on efforts to raise capital, including through the sale of a stake in its flagship memory chips business.
"The question for Toshiba is how is it going to move forward," said Masahiko Ishino, analyst at Tokai Tokyo Research Center.
He added Toshiba would need to show how it could stay competitive in the cash-generating but capital-intensive memory chip industry, given its battered balance sheet.
Toshiba has offered a 19.9% of its prize chips business to investment funds and rivals including Bain Capital, SK Hynix and Micron Technology.
Pillar of business
On Thursday, a source said that Toshiba had received bids of between 200 billion yen to 400 billion yen for the flash memory stake, a range that could cover the 300 billion yen the company wants to raise. It prefers multiple investors.
Toshiba is a pillar of Japan's business establishment. Born in the tumult of Japan's emergence from centuries of isolation, it made Japan's first light bulb and was a pioneer in laptop computers. Toshiba's 190,000 workers, employed at some 500 units, likely will make it too big to fail.
But as with other established Japanese firms that have dodged financial collapse, such as liquid crystal display inventor Sharp Corp, Toshiba could face protracted pain.
Financial sources last week pointed to problem businesses within Toshiba beyond nuclear, including Landis+Gyr AG.
Toshiba agreed to buy that unlisted meter maker for $2.3 billion in 2011 to tap smart grid demand that at the time was expected to grow six-fold to around $70 billion in 10 years. At the end of September, the goodwill value of Landis+Gyr was 143.2 billion yen ($1.3 billion).
Other stumbling blocks for Toshiba include a $7.4 billion commitment four years ago to buy U.S. liquefied natural gas believing that would help sell power plant turbines.
A fall in Asian gas prices, now at about half the level they were, has cast doubt on that strategy.
Toshiba, on a stock exchange watchlist barring it from issuing new shares, must also contend with fallout from the 2015 accounting scandal.
Mitsubishi UFJ Trust and Banking Corp last month said it will seek 1 billion yen in damages, while sources say Sumitomo Mitsui Trust Bank Ltd and Mizuho Trust & Banking Co are preparing similar suits.
With its latest financial crisis unresolved, investors appear most nervous about Toshiba's short-term prospects.
The cost of insuring against a credit default has soared over the past two months. Five-year insurance, or credit default swaps, was quoted at 315/355 basis points on Friday, compared with 75 basis points in mid-December.
That quote, below late December highs, suggests it would cost $315,000-$355,000 per year for five years to insure $10 million in bonds. The CDS curve is inverted, suggesting short-term cover is most expensive.
($1 = 113.1900 yen)