Toshiba flags hit of 'billions of dollars' on U.S. nuclear acquisition

Tue Dec 27, 2016 1:28pm EST
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By Makiko Yamazaki and Greg Roumeliotis

(Reuters) - Toshiba Corp said it may have to book several billion dollars in charges related to a U.S. nuclear power plant construction company acquisition, sending its stock tumbling 12 percent and rekindling concerns about its accounting acumen.

The Japanese group said cost overruns at U.S. power projects handled by the CB&I Stone & Webster Inc business it acquired last December from Chicago Bridge & Iron Company NV (CB&I) would be much greater than initially expected, potentially requiring a huge writedown.

Toshiba's announcement came as its Westinghouse Electric Company subsidiary is engaged in a legal and accounting row with CB&I, which has argued in court that it expected a relatively small payment from Westinghouse of only $161 million when the deal closed on the understanding that the latter was taking on a challenged business.

Toshiba's latest writedown would be another slap in the face for a sprawling conglomerate hoping to recover from a $1.3-billion accounting scandal, as well as a writedown of more than $2 billion for its nuclear business in the last financial year."This will come as an additional shock to Toshiba's institutional investors that may further undermine confidence in company management, as well as significantly weakening its international nuclear credentials," said Tom O'Sullivan, founder of energy consultancy Mathyos Japan.

O'Sullivan noted the acquisition in December 2015 coincided with the finalizing of a record fine by Japanese regulators for accounting irregularities at Toshiba, indicating that corporate governance controls were extremely weak.

Toshiba Chief Executive Satoshi Tsunakawa, who only took the helm in June after his predecessor embarked on a series of restructuring steps to clean up Toshiba's books, said the conglomerate would look at some kind of strategy to boost capital.

"We would have needed to boost our capital base anyway because our shareholders' equity ratio is low," he told a news conference.

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

Pedestrians walk past a logo of Toshiba Corp outside an electronics retailer in Tokyo, Japan, June 25, 2015. REUTERS/Yuya Shino/File Photo