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Delays, confusion as Toshiba reports $6.3 billion nuclear hit and slides to loss

Toshiba President Satoshi Tsunakawa leaves after a press conference at the company's headquarters in Tokyo on February 14, 2017.
Behrouz Mehri | AFP | Getty Images

After a day of delays and confusion, Japan's Toshiba said on Tuesday it would book a $6.3 billion hit to its U.S. nuclear unit, a writedown that wipes out its shareholder equity and leaves the loss-making group scrambling for capital.

Highlighting the scale of its financial concerns, Toshiba also ramped up plans to raise cash, announcing it would consider selling most, even all, of its stake in its prized flash-memory chips business, plus its troubled nuclear business Westinghouse.

Toshiba had previously yielded only to selling just under 20 percent of the NAND memory unit, which makes chips for mobiles and tablets and is its most valuable business.

"We are considering various offers for the chips business and we will act flexibly - even if that means giving up a majority of the unit," Chief Executive Satoshi Tsunakawa said.

Earlier on Tuesday, the battered conglomerate rattled investors by failing to release its earnings on schedule, saying initially it was 'not ready' and then announcing later it needed more time to probe its Westinghouse nuclear business after internal reports had uncovered potential problems.

The figures eventually released were numbers that have yet to be approved by its auditor and Toshiba cautioned investors that a major revision was possible. Fully audited numbers are now not due till March 14, after the firm was granted a reprieve for its formal filing by Japanese regulators.

What to make of Toshiba's earnings release delay

"Finally, now people are starting to recognize that internal control problems, the accounting issues and governance issues are very real and no longer abstract," said Zuhair Khan, an analyst at Jefferies in Tokyo.

"They impact the viability of the company."

Shares in the group slid 8 percent, putting the company's market value at 973 billion yen ($8.6 billion), less than half its value in mid-December. Just under a decade ago, the firm was worth almost 5 trillion yen.

Toshiba bonds fell sharply, with the highest yields for shorter dated bonds, a sign of worry over short-term prospects.

Nuclear exit

Toshiba announced the first top-level departure since the nuclear problems were uncovered in December: chairman Shigenori Shiga, a former Westinghouse boss brought in to the top role last year after a $1.3 billion accounting scandal in 2015 shook up Toshiba's upper ranks.

Westinghouse, bought from the British government in 2006 at twice the expected price, and a small U.S. deal agreed in 2015, proved too much for Toshiba, as cost overruns at the U.S. business piled up and costly delays lengthened.

Toshiba sought to draw a line under its decade-long nuclear nightmare on Tuesday by pulling out of nuclear power plant construction overseas, reducing its involvement to reactors and services, a major step back.

Toshiba's share price could fall much further: Expert

Reuters reported this month that Toshiba was seeking at least a partial exit from ventures in Britain and India, a blow to both countries' nuclear plans.

"Looking at today's numbers it is difficult to say that the acquisition was the correct choice," Tsunakawa said.

In an earlier, separate statement, Toshiba outlined concerns at Westinghouse.

Internal reports, Toshiba said, suggested controls at Westinghouse had been "insufficient" and it needed to look into whether senior managers at Westinghouse exerted "inappropriate pressure" during discussions over the 2015 U.S. deal to buy the company at the heart of its cost overruns, it said.

"We judged that it would take about a month for external lawyers ... to conduct these further probes and for the independent auditors to review the results," Toshiba said.

Executives later declined to elaborate on the concerns. Toshiba said it expected to book a 499.9 billion yen ($4.4 billion) net loss for the nine months to December, and a 390 billion yen net loss for the full year.

It also ended 2016 with negative shareholder equity due to the 712.5 billion yen nuclear writedown - a charge that was first flagged in December last year.

Toshiba is due to meet its creditor banks on Wednesday.

($1=113.42 yen)

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