Writedown fears take off $5 bn of Toshiba's value

The Dollar Business Bureau

An impending writedown at Japanese multinational Toshiba Corp has written off around $5 billion of its value in just two days that led to a downgrade of its credit rating on Wednesday, as the conglomerate was coping to bridge a potential multi-billion dollar gap.

The Japanese major in a media statement on Tuesday said that “cost overruns a nuclear business in US it purchased from engineering company Chicago Bridge & Iron (CB&I) last year, Stone & Webster, which meant the company could face charges of several billion dollars,” leading to a bruising overpayment.

However the company did not state whether that would write off the value of its assets but hinted that it would impact its net worth. It said that this could take time until February to know the exact impact.

On the other hand, the shares of Toshiba took a hit on Wednesday, declining 20% at the Tokyo stock exchange. This follows a drop of 12% on Monday after early warning signs from the group.

Investors are worried that a hit to the finances of the group could also weaken its competitiveness in its key semiconductor business, specially the investment in 3D NAND, a type of flash memory.

The group’s value, for the first time in 7 years, dropped below its tech rival Sharp Corporation.

The rating agency, Standard & Poor's (S&P) downgraded the company, which is already in lower territory, from B to B (-), with a ‘negative’ outlook. The rating agency said the projected shareholder’s equity fell drastically as a consequence of the writedown, wearing away the resilience of the group, whereas it is expected that the higher working capital would lead to burning of more cash.

“Toshiba's ability to enhance its shareholders' equity is likely to continue to be difficult for the foreseeable future,” S&P said.

The group’s credit default swaps, measuring the cost of insuring its debt, surged by almost 40 basis points (bps) to 111/136 bps, which means it would cost around $111,000-136,000 a year for 5 years for insuring $10 million in bonds.