While Toshiba appears to have averted the risk of immediate delisting from the Tokyo Stock Exchange by submitting its annual financial results with sign-off by an auditor ahead of the deadline, the Japanese conglomerate’s prospects of maintaining its listing remain far from certain.
On Thursday, Toshiba handed its financial results for the business year ended March 2017 to the Kanto Local Finance Bureau after missing the original deadline in June. The report came with a “qualified opinion” from auditor PricewaterhouseCoopers Aarata LLC, which means that while the results contain minor problems, overall they are presented fairly.
PwC Aarata gave an “adverse” statement on the company’s internal controls, however, saying it had overlooked massive losses related to the company’s now-bankrupt U.S. unit.
“It’s still hard to say that Toshiba has taken a huge step forward,” said Masahiko Ishino, an analyst at Tokai Tokyo Research Center.
Ishino said the adverse opinion on its corporate governance overshadows the fact that Toshiba submitted the financial statement in time.
“It’s a step forward and a step backward at the same time. … Uncertainty still hangs over whether Toshiba will be able to remain as a listed company or not.”
Approval from PwC Aarata was hard won as the auditor and Toshiba disagreed on losses related to former U.S. nuclear unit Westinghouse Electric Co., which filed for Chapter 11 bankruptcy protection in March.
According to the Tokyo Stock Exchange’s listing rules, a company submitting a financial report carrying a disclaimer or an adverse opinion can be delisted if the TSE judges that its shares are detrimental to the interests of investors.
Toshiba’s earnings report for the nine months to December 2016 had come with a disclaimer from PwC Aarata after the firm twice postponed its release, since February this year, raising speculation that Toshiba could fail to submit annual results without auditor approval and get delisted.
But a spokeswoman at the TSE said that partial approval from an auditor does not eliminate the possibility of Toshiba’s delisting. In Toshiba’s case, the TSE will have to carefully assess whether its internal controls have improved since its shares were put on the TSE watch list after an accounting scandal in 2015 involving the overstating of profits.
On the other hand, the spokeswoman said that an adverse opinion for Toshiba’s corporate governance or even for its financial statement will not necessarily lead to delisting, either.
“Of course, we will refer to the opinion attached to the annual results but a (good opinion) does not mean that Toshiba will stay listed while a (lower opinion) does not mean delisting,” the bourse official said.
“For the TSE it all depends on whether Toshiba’s (governance) system is improving or not … This could still go either way.”
Sources have said that approval from the auditor may improve how Toshiba is viewed and could have a positive impact on the TSE’s review of the company.
A senior technology analyst said that while Toshiba’s immediate delisting risk has decreased following a qualified opinion by its auditor, the probability of Toshiba getting delisted on the basis of negative shareholder equity has not changed at all.
Toshiba is in desperate need of covering its losses from its U.S. nuclear business. It will face automatic delisting from the TSE unless it eliminates its negative net worth by next March. Toshiba is hoping for a quick sale of its profitable chip unit Toshiba Memory Corp. to eliminate negative net worth.
In June, the company picked a consortium of state-backed Innovation Network Corp. of Japan, the state-owned Development Bank of Japan, U.S. investment fund Bain Capital and South Korean chipmaker SK Hynix Inc. as the preferred bidder for Toshiba Memory.
But talks have stalled, causing Toshiba to miss a self-imposed deadline around the end of June to seal a deal after SK Hynix started demanding voting rights instead of providing loans. A legal spat with the joint venture partner Western Digital Corp., which claims that any sale without its consent breaches their joint venture contract, also continues to loom over the sale process.
“The biggest risk is still going to be what happens to the sale of the memory business,” the senior technology analyst said.
The legal dispute between Toshiba and Western Digital is scheduled to be examined by an international court of arbitration between September and October with the process likely to take a year or more.
“In the meantime nobody can make a clean, unconditional bid,” said Stephen Givens, a corporate lawyer based in Tokyo. “I can’t imagine that anybody is going to pay real money for these assets until the legal situation has been made clear,” Givens said, warning that the sale process would likely be paralyzed indefinitely as a result.