Business / Corporate

Bank-related funds may invest in ailing Toshiba's flash memory unit

Kyodo

Investment funds established by Toshiba Corp.’s main creditor banks may invest in the company’s flash memory unit as the conglomerate prepares to spin off the operation, sources have said.

Toshiba, facing huge potential losses related to its U.S. nuclear business, is likely to hold a board meeting Friday to carry out procedures to spin off its profitable unit in order to receive external assistance, the sources said Tuesday.

The funds include UDS Mezzanine Fund, established by Sumitomo Mitsui Banking Corp. and the state-owned Development Bank of Japan, and Blue Partners Fund, launched by Mizuho Bank and the DBJ.

Toshiba said last month it may book an asset impairment loss of up to several billion dollars as it will write down the value of assets related to its U.S. nuclear business. The losses could reach ¥700 billion ($6.2 billion), people familiar with the matter have said.

The conglomerate said Tuesday that the precise scale of the impairment losses will be revealed on Feb. 14 when it reports its group earnings for the April-December period. “Determination of goodwill requires the verification of enormous data and considerable time for scrutiny,” the company said in a statement.

Last week, the Japanese electronics manufacturer said that it is considering spinning off its flash memory business to raise funds, a move that would generate cash through the sale of a stake in the new entity to offset losses in its U.S. nuclear business. The company is eying listing the unit.

While foreign investment funds and Canon Inc. have said they are interested in buying stakes in the spun-off company, there are also concerns that Toshiba’s influence could be limited in such a scenario.

Bank-established investment funds raise cash from a wide range of investors. Because investment through such a vehicle would strongly suggest an intention to support, such funds are unlikely to be heavily involved in management.

If the nuclear-to-electronics conglomerate falls into negative net worth at the end of the current fiscal year in March, it will be downgraded to the second section of the Tokyo Stock Exchange from the first section.

Toshiba is likely to hold an extraordinary shareholder’s meeting in March as the spinoff move will need their approval.

On Tuesday, U.S. credit rating agency Standard & Poor’s said it had downgraded Toshiba’s long-term corporate credit by one notch to CCC+ from B— over the electronics company’s delay in revealing the amount of the write-down related to its U.S. nuclear business. Expectations were high that Toshiba would confirm the amount of losses by mid-January, the agency said.

The agency had just downgraded the conglomerate last month.