Just as the nuclear industry faces growing uncertainty brought on by the
crisis in Japan, Toshiba Corp. (6502.TO) is having to spend more than $1.6
billion to raise its stake in U.S. nuclear energy firm Westinghouse to 87% from
the current 67%.
Not only that, the move appears at odds with Japanese electronics giant's
efforts to diversify its energy-related businesses beyond nuclear power after
the disaster at the Fukushima Daiichi plant, where some of the reactors were
supplied by Toshiba.
Toshiba didn't choose to buy more shares in the
U.S.
subsidiary.
Shaw Group Inc., which holds 20% of Westinghouse, decided this week to exercise
its right to sell the stake back to the Japanese parent company, in accordance
with an agreement struck in 2006 when Shaw bought the shares.
Analysts say the cost of funding an increased stake may stretch Toshiba's
balance sheet in the short term, though not dramatically. But more importantly,
it means the company's fortunes are likely to be tied closer to the nuclear
power industry even as the sector faces fresh questions over safety, long
delays in the building of new plants and intensifying competition as more
players focus on emerging markets for new construction projects.
In late May, Toshiba President Norio Sasaki warned that the company's target of
39 orders for nuclear reactors and Y1 trillion in sales in its nuclear business
may have to be delayed beyond the previously expected March 2016.
"A larger stake in Westinghouse now doesn't sound desirable," said
SMBC
Friend
Research
Center
analyst Masao Banba. The return on any investment in nuclear power may worsen
due to delays in plant construction plans, he said. "Demand is still
there, but it will just take longer to achieve the same targets."
Since March, Toshiba has tried to strengthen its energy business in areas other
than nuclear power, saying it had contemplated such a move prior to the March
11 crisis.
In May, the company announced a $2.3 billion deal to acquire Landis + Gyr, a
Swiss maker of advanced power meters, a key component for highly efficient
power-distribution systems using the latest information technology. Toshiba
also agreed in May to buy roughly one-third of Unison Co. (018000.KQ), a South
Korean maker of wind power equipment.
Shaw's stake sale was prompted in part by the yen's surge. The Louisiana-based
engineering company had issued yen-denominated debt to finance its purchase of
Westinghouse shares in 2006. Since then, the debt has increased by more than
50% in U.S. dollar terms to about $1.7 billion as the yen has risen to record
levels against the greenback.
The put options Shaw is exercising require Toshiba to purchase the shares at a
price equivalent to at least 96.7% of the principal amount of the bonds Shaw
originally issued.
For Toshiba, this creates expenses equivalent to more than a half of its cash
balance, which stood at Y224.24 billion ($2.9 billion) as of the end of June. It
could place a burden on its balance sheet for the short term, even though the
company wouldn't have to rely on new share issues or other dilutive fundraising
methods, analysts say.
"A temporary financial impact (from the share purchase) will be
inevitable," said Toshiba spokesman Keisuke Ohmori. He said that the
company may use some of its cash and is also considering short-term bank loans.
Toshiba also said in a press release that it may seek new investors in
Westinghouse
"This surely isn't good timing, because now is the time to be defensive
about spending," said Yuichi Ishida, an analyst at Mizuho Investors
Securities.
Other current shareholders in Westinghouse include
Kazakhstan
uranium supplier Kazatomprom, which holds 10%, and
Japan
's IHI
Corp. (7013.TO)
with a 3% stake.