Toshiba falls 5% on Confirmation of Fundraising Plans

Toshiba Corp. reveals plans of raising 600 billion yen ($5.4 billion) through sales of new shares. The company will also be divesting its Westinghouse-related assets in hopes of avoiding being delisted from the Tokyo Stock Exchange.

Toshiba name and sign

Toshiba name lit up during a company event.

Company shares fell as much as 5 percent during early trading in Tokyo. It then retreated and fell to 2.7 percent at 284 yen per piece.

According to a statement made by the company, the transaction was approved by Toshiba’s board on Sunday. It is expected to close on December 5.

Also, from a separate statement the company made in Japanese, it will sell 2.28 billion new shares at 262.8 yen a piece. This will result to around 10 percent less than Friday’s closing price.

The Tokyo-based company has been in a risky situation in terms of its finances ever since its multibillion dollar write-down on its now bankrupt U.S. nuclear unit, Westinghouse.

The issue of 2.28 billion new shares at 262.8 yen a share will end up diluting the shares by 54 percent in earnings per share.

“Toshiba’s fund raising news eliminates the risk of Toshiba being delisted so that part is positive,” stated chief portfolio manager, Takatoshi Itoshima.

“What’s also positive is that the fund raising will improve the company’s financial health. There is an argument that the company will be left with nothing (without the chip business), but it’s good that the company’s capital will recover,” he added.

Toshiba expects that the consolidated negative 750 billion yen on its balance sheet will be removed by the end of the fiscal year in March if the transactions end up being successful.

According to the Japanese company, there will be around 60 funds that will be making investments. This include Effissimo Capital Management Pte Ltd and David Einhorn’s Greenlight Capital.

“Eliminating excessive debt and bolstering capital can certainly be seen in a positive light. But dilution is still something to be reckoned with,” said analyst Masahiko Ishino.

Toshiba’s Memory Chip

Toshiba is now straining to finish the 2 trillion yen sale of its valued memory chip business.  A consortium led by Bain Capital was able to buy it as the company tried to cover its 750 billion yen hole in shareholder parity.

Legal actions made by Western Digital Corp. made the sale complicated. The company argued that it should have veto rights due to its lingering partnership with Toshiba. The U.S. company was able to file for arbitration to settle the issue. This can drag out and make the closing rather complicated.

Toshiba and Western Digital held talks in the United States last week for settlements. They haven’t yet come to any agreement.

 

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