Toshiba Says Nuclear Writedown May Reach Billions of Dollars

(Bloomberg) -- Toshiba Corp. can’t get past its accounting problems.

The Japanese company, which paid a record fine a year ago for its bookkeeping practices, warned that it may now have to take another charge of several billion dollars related to an acquisition made by U.S. unit Westinghouse Electric.

The company’s shares fell 12 percent to 392 yen at the close in Tokyo on Tuesday, the biggest decline since December 2015, after earlier reports that it may book a loss of as much as 500 billion yen ($4.3 billion). Toshiba issued a statement after the market closed, saying that while the final writedown was yet to be determined, it would affect earnings.

The loss is related to a dispute over the value of an acquisition by Westinghouse of a nuclear construction company called CB&I Stone & Webster Inc. The Nikkei newspaper said the writedown would come to about 100 billion yen, while Japanese broadcaster NHK said the charge may total as much as 500 billion yen. Such a loss would eclipse the 168 billion yen in net income that analysts had been projecting for Toshiba’s current fiscal year through March. The Tokyo-based company booked a loss of 460 billion yen last year.

“Assuming the article to be accurate, we would expect Toshiba’s weak financial standing to be damaged further,” said Takeshi Tanaka, an analyst at Mizuho Securities Co.

Toshiba didn’t elaborate further in Tuesday’s statement to the Tokyo Stock Exchange, 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, which was acquired by Westinghouse Electric in January.

Toshiba’s bond risk jumped by the most in more than 10 months after the media reports Tuesday. The cost to protect against non-payment for Toshiba rose 50 basis points to 135 basis points as of 1:50 p.m. in Tokyo, according to data from a credit-default swap trader, who asked not to be identified. The company’s CDS are on course for the biggest gain since Feb. 8, according to CMA data. The contracts were at 84.4 basis points on Monday.

Toshiba shares had climbed 77 percent this year through Monday as the company recovered from an accounting scandal that claimed the jobs of three presidents, led to record losses and prompted the company to cut staff and sell off businesses. The conglomerate, which makes everything from refrigerators, chips and computers to nuclear power equipment, is also being sued by shareholders accusing it of misleading them about its finances.

Toshiba was fined a record 7.4 billion yen in December last year after Japanese regulators found the manufacturer misled investors by filing false financial statements. The watchdog has also been gathering evidence to determine whether to seek criminal prosecutions of former bosses over the scandal.

While the company can probably offset a one-time loss of 100 billion yen, a charge of 500 billion yen would be “severe” given its potential impact on shareholders’ equity, according to Takao Matsuzaka, a credit analyst in Tokyo at Daiwa Securities Group Inc.

“It comes down to how much they can counterbalance any loss,” said Matsuzaka in a telephone interview. “Improving the financial base of the company is a top priority.”

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net, Finbarr Flynn in Tokyo at fflynn3@bloomberg.net, Tesun Oh in Tokyo at toh15@bloomberg.net. To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Peter Elstrom