Toshiba Corp. shares were demoted Tuesday to the Tokyo Stock Exchange’s second section after the company’s liabilities exceeded its assets in the year ended in March.
Toshiba failed to meet the bourse’s listing standards because the conglomerate incurred a negative net worth due to huge losses from its U.S. nuclear business. Its shares will be delisted automatically unless it eliminates its negative net worth by next March.
The company is likely to face an uphill battle to remain listed, given delays to its plan to overcome its negative balance sheet by selling the company’s profitable semiconductor unit.
The demotion of Toshiba follows a similar downgrading for fellow electronics giant Sharp Corp. last year.
At the TSE on Monday, Toshiba’s last trading day on the first section, it ended at ¥246.00, up ¥6.80, or 2.8 percent, from Friday on speculative buying aimed at obtaining short-term profits.
During the bubble economy from the late 1980s to the early 1990s, Toshiba was a major first section issue, ranking among the top 10 stocks in terms of market capitalization excluding financial shares.
Toshiba’s share price once topped ¥1,000 per share but tumbled in 2015 due to an accounting scandal. Although the stock picked up in 2016, it plunged again at the end of the year after Toshiba revealed massive losses related to its U.S. nuclear unit Westinghouse Electric Co., which filed for bankruptcy protection in March.
Toshiba hopes to eliminate its negative net worth by selling its flash memory arm Toshiba Memory Corp. for at least ¥2 trillion.
But the company has yet to seal a deal with the government-led Japan-U.S.-South Korean consortium it has chosen as its preferred bidder for the unit. Talks stalled after a consortium member, South Korean chipmaker SK Hynix Inc., demanded voting rights in the unit instead of only providing loans as initially planned.
Moreover, Toshiba’s joint chip production partner, U.S.-based Western Digital Corp., is strongly opposed to the plan and is seeking to block the sale through a court battle.
Toshiba also faces an Aug. 10 deadline to submit a fiscal 2016 financial report that was supposed to be presented by the end of June. Whether the company will be able to gain approval from its auditor for its full-year accounts is key for it to remain listed.
If the auditor considers Toshiba’s financial statements inadequate, Japan Exchange Group Inc. — which has the TSE under its umbrella — could decide to delist the Toshiba stock.
Even if Toshiba remains listed, it may not be able to return to the first section within the next five years or so, given TSE rules that require companies to maintain proper account settlements.