Toshiba Falls by Record as Ratings Cut on Looming Writedown

(Bloomberg) -- Toshiba Corp. plunged by the most on record in intraday trade after the company’s credit ratings were cut following an announcement it may write down billions of dollars of an acquisition made by U.S. unit Westinghouse Electric.

The shares fell as much as 26 percent, the most since 1974, according to available data, to 232 yen in Tokyo on Thursday. The stock plunged a day earlier after Toshiba issued a statement saying that while the final writedown was yet to be determined, it would affect earnings. That was followed by Moody’s Investors Service, Rating and Investment Information Inc. and S&P Global Ratings all cutting their ratings on Toshiba’s credit.

The potential loss is related to a dispute over the value of a nuclear construction unit acquired by Westinghouse that was geared toward completing the newest generation of reactors at two U.S. facilities, which are behind schedule and over budget. Toshiba’s financial standing could come under further strain, according to a statement from S&P. Toshiba’s market value has declined by about 800 billion yen ($6.8 billion) this week.

“The downgrade of Toshiba’s ratings principally reflects Moody’s deepening concerns over the sustainability of Toshiba’s near-term liquidity,” Masako Kuwahara, a Moody’s senior analyst, said in a statement Dec. 28. “The impairment loss could further lead to a breach of Toshiba’s bank debt financial covenants.”

The risk that emerged in its nuclear business may negatively impact the evaluation of company’s risks, R&I said. The agency added that it can’t ignore the fact that being on the Tokyo Stock Exchange’s alert list would limit Toshiba’s means to increase capital.

Toshiba didn’t elaborate further when announcing the potential writedown earlier this week, other than to say that the writedown would exceed an initially anticipated amount of $87 million, and would probably be in the billions. The increase in charges is related to project costs incurred by CB&I Stone & Webster, a nuclear construction and services company that was acquired by Westinghouse in January.

To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net, Aaron Clark in Tokyo at aclark27@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Aaron Clark, Reed Stevenson