Partners Fret With Toshiba Near the Brink -- WSJ

By Takashi Mochizuki, Mayumi Negishi and Kosaku Narioka Features Dow Jones Newswires

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.

Continue Reading Below

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.

Continue Reading Below

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 10, 2017 02:48 ET (06:48 GMT)