Sumitomo Corp. shares posted their biggest fall in almost two decades Tuesday after the trading house said it lost $2.2 billion on investments, including Texas shale oil and Australian coal mining.
The 13 percent drop is the biggest intraday fall since June 1996, the month Sumitomo announced that its chief copper trader, Yasuo Hamanaka, had lost about $2.6 billion in illicit trades of the metal in one of the largest ever commodities trading scandals.
Sumitomo’s writedown could see it slash its second-half dividend to a fifth of the payout it forecast earlier this year as one of Japan’s oldest trading houses hunkers down after another miscue in its resources investments. Chief Executive Officer Kuniharu Nakamura had said in May that the company planned more forays into commodity assets.
Sumitomo cut its annual profit forecast by 96 percent to ¥10 billion after writing down the shale oil project it shares with Devon Energy Corp. in the U.S. by ¥170 billion and its Australian Isaac Plains coal mine, co-owned with Vale SA., by ¥30 billion.
Of Japan’s five major traders, Sumitomo reaped the least profit — 7 percent, or ¥15.6 billion — from commodities in the last fiscal year. The company, which traces its roots to copper refining in the early 17th century, has struggled to keep pace with domestic rivals such as Mitsubishi Corp. Its resource units have failed to meet profit targets and a key $5.3 billion nickel project in Madagascar is over budget after missing deadlines.
Sumitomo also said it would take charges on the value of iron ore investments in Brazil and its U.S. tire business. Including a positive tax impact from the writedowns, the company’s total impairment will be $2.2 billion, it said.
The writedowns could reduce the company’s dividend for the six months ending March 31 to ¥5 per share from ¥25, a Nomura Holdings Inc research note said Monday.
“We take an unfavorable view of the company’s reduced capacity for making shareholder returns,” Yasuhiro Narita, an analyst with Nomura, said in the report. The impairments will cut Sumitomo’s equity by about 10 percent, he said.
A Sumitomo spokeswoman said she could not immediately answer further questions on the writedowns, asking not to be named, in line with corporate policy.
The trader had already blamed Isaac Plains for a slide in its profit in the fiscal year ended March 31, saying it needed to write down the investment by ¥27.7 billion due to slumping coal prices. Monday’s announcement takes the total impairment on the mine to $528 million dollars, more than Sumitomo paid for it in 2012.
Sumitomo CEO Nakamura said Monday the company will review its earlier plans to increase investments in natural resources. The losses are particularly unfavorable as Sumitomo’s management did not view the U.S. oil assets as an impairment loss risk, according to Nomura’s Narita.
The trader’s stock ended Tuesday in Tokyo at ¥1,210.5, down 12 percent. It fell over 16 percent in the immediate aftermath of the Hamanaka scandal.
Sumitomo dragged down other traders, with Mitsubishi down 3.8 percent, the most since February, and Mitsui & Co., Japan’s second-largest trader, down 3.3 percent. Itochu Corp. and Marubeni Corp. both fell 4.4 percent.
Sumitomo said it will form a special committee to investigate the causes of the impairments, while CEO Nakamura said there would not be any more writedowns “unless we see a sharp drop in resources prices.”
Itochu, which surpassed Sumitomo by profit last year to become Japan’s third-largest trader, does not expect any writedowns in its commodity businesses or changes to its dividends after Sumitomo’s announcement, said a spokesman, who asked not to be named in line with corporate policy.
Spokesmen for Mitsubishi and Mitsui could not immediately be reached for comment. A Marubeni spokeswoman said she could not immediately comment on the company’s strategy.
Sumitomo plans to sell the northern part of the shale project it shares with Devon Energy, citing difficulties in extracting the oil and gas efficiently.
The company in August 2012 said it was investing about $2 billion in Texas shale fields via the purchase of a stake in the assets from operator Devon Energy. Sumitomo agreed to pay Oklahoma City-based Devon $340 million cash for 30 percent of the project located in the Permian Basin, the biggest oil resource in North America.