Writedown fears wipe $5 billion off Toshiba's value as it weighs options

Wed Dec 28, 2016 4:54am EST
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By Makiko Yamazaki

TOKYO (Reuters) - A looming writedown at Japanese conglomerate Toshiba Corp (6502.T: Quote) has wiped almost $5 billion off its value in two days and prompted a credit rating downgrade on Wednesday, as the company grapples to plug a potential multi-billion dollar hole.

Toshiba said late on Tuesday that cost overruns at a U.S. nuclear business it bought from Chicago Bridge & Iron CBI.N last year, CB&I Stone & Webster, meant it could face 'several billion dollars' in charges, acknowledging a bruising overpayment.

It did not comment on whether that would wipe out its asset value and tip the company into negative net worth. Executives said it could take until February to pinpoint the exact impact.

Toshiba shares, however, took an immediate hit on Wednesday, falling 20 percent to hit the Tokyo exchange's daily downward limit. That follows a 12 percent drop on Monday after initial warnings from the group.

Investors fretted that a blow to the group's finances could even weaken its competitiveness in its core semiconductor business - specifically investment in 3D NAND, a new advanced type of flash memory - or result in firesales and dilutive share issues.

For the first time in seven years, the value of the group fell below that of tech rival Sharp (6753.T: Quote).

Rating agency Standard & Poor's downgraded Toshiba, already in junk territory, to B- from B, with a "negative" outlook. S&P said it expected shareholder equity to "drastically shrink" as a result of the writedown, eroding the group's resilience, while expected higher working capital would burn more cash.

Toshiba's credit default swaps, which measure the cost of insuring Toshiba's debt, jumped by 40 basis points (bps) to 111/136 bps TOSB5YJPAC=MG, meaning it would cost $111,000 - $136,000 per year for five years to insure $10 million in bonds.   Continued...

Pedestrians walk past a logo of Toshiba Corp outside an electronics retailer in Tokyo, Japan September 14, 2015.   REUTERS/Toru Hanai/File Photo