News & Media

15 April, 2019

LNG Market News - Japan

(Source: Nikkei Asian Review 12/Apr/2019)

Sale of Toshiba's US shale gas unit scrapped by Chinese buyer

Foot-dragging by US and Chinese authorities sink the deal

TOKYO -- Toshiba said Thursday that China's ENN Ecological Holdings intends to terminate the purchase of its liquefied natural gas business in the U.S., further clouding the Japanese company's restructuring plan.

The private Chinese gas supplier informed Toshiba on Wednesday night, citing "considerable uncertainty in proceeding" with the deal given the delays in obtaining approval from U.S and Chinese authorities. Toshiba said that official documentary notice to terminate the sales agreement must still be given.

The deal was scheduled for completion at the end of March. But the Committee on Foreign Investment in the U.S. has not conducted its review due to the recent government shutdown, and China's State Administration of Foreign Exchange has yet to grant its approval.

Toshiba said in February that it expects consolidated net profit for the year ended in March to climb 8% to 870 billion yen ($7.83 billion), including a provision for a roughly 93 billion yen loss related to its LNG sale. The LNG operation's impact on earnings will have to be reevaluated now that the loss is unlikely to be booked without the sale, the company said.

The LNG business remains on the auction block, since retaining it could generate an even greater loss for Toshiba in the future. But the complications in reaching a deal with ENN suggest that securing another buyer will be difficult.

Toshiba entered the American LNG market in 2013, aiming to pair sales of the fuel and power generation equipment using electricity from a nuclear power facility it had planned to build at the time. The company acquired concessions to process 2.2 million tons of Texas shale gas into LNG annually over 20 years starting in 2020.

But the business is far from Toshiba's strengths in electronics and machinery, while also carrying risks such as price fluctuations. Should it fail to sell any gas, the company could face a loss of up to 1 trillion yen without a sale of the operation.

Toshiba decided to sell its LNG business after falling into a financial crisis, stemming from losses in U.S. nuclear power operations and an accounting scandal, that forced the company to restructure. Potential buyers emerged, including American gas company Tellurian, but negotiations eventually broke down.

The Japanese conglomerate appeared to find its exit in November by agreeing to a deal with ENN. Having found a buyer for its LNG business, which the stock market considers Toshiba's final baggage, the company released its midterm management plan for the period beginning in April.