News & Media

03 June, 2019

LNG Market News - Japan

(Source: Nikkei Asian Review 01/Jun/2019)

Toshiba unloads Texas LNG business in sale to Total

Troubled conglomerate to book $858m loss on deal as it turns focus to growth areas

TOKYO -- Toshiba will sell its liquefied natural gas business in Texas to French energy giant Total, securing a buyer for the risky asset after a previous deal with a Chinese company collapsed, the troubled Japanese company announced on Saturday.

Nikkei had reported the deal earlier in the day.

The sale will be completed by the end of next March. Total will pay $15 million, with the stake being transferred from a Toshiba subsidiary to a Total subsidiary in Singapore.

The transfer will require Toshiba to bear a one-time payment of $815 million to Total. The total loss Toshiba expects to record for the deal is approximately 93 billion yen. The total, including related expenses, will be booked in Toshiba's consolidated business financials at the end of March.

For Toshiba, which has come back from the brink of collapse, the volatile LNG business has been the last remaining threat to its financial stability. By unloading the noncore business, the conglomerate will now focus on growth areas, such as social infrastructure that facilitates public services.

Toshiba holds the rights to sell about 2.2 million tons of LNG annually for two decades starting 2020 under a 2013 deal with the Freeport LNG project in Texas. But it has decided to let go of the noncore business to help get back on its feet.

Toshiba had agreed back in November to sell the business to China's ENN Ecological Holdings. But the Chinese group pulled out in April amid concerns from its shareholders, as well as delays in gaining the necessary approval from the Committee on Foreign Investment in the U.S. and China's State Administration of Foreign Exchange.

Total currently controls about 10% of the global market for LNG. The company also has a stake in the Ichthys LNG Project in Australia, and a deal with Toshiba will help it further diversify its supply.

When Toshiba first entered the business in 2013, the suspension of Japan's nuclear power plants in the aftermath of the Fukushima disaster had lifted LNG demand in the country. But the fuel is subject to wild fluctuation in prices. Toshiba was believed to be at risk of losing nearly 1 trillion yen on its LNG business. The company's lack of a stable client base did not help matters.

Exxon Mobil and Royal Dutch Shell were also named as potential buyers of Toshiba's business. The industrial conglomerate was expected to make a final decision by the fiscal-year end in March 2020.

Toshiba has been plagued by a damaging accounting scandal and massive losses at its U.S. nuclear plant business since 2015, which at one point drove the company to the brink of ruin. It raised 600 billion yen through a capital increase at the end of 2017 and sold a number of units, including its flagship chipmaking business, as part of its rehabilitation plan.

In April, the company embarked on the "Toshiba Next Plan" -- a medium-term strategy to reorganize itself and boost earnings. With the Total deal, it will no longer have to worry about losing massive amounts of money on LNG.

But the foreign activist investors that bailed out Toshiba are keeping a close eye on whether it can meet its earnings targets. A new board, comprised of 80% external directors, will launch at the end of June.

Whilst every effort has been made to ensure the accuracy of the information contained herein, Inchcape Shipping Services (ISS) accepts no liability nor makes any representations or warranties of any kind, express or implied, as to its completeness, accuracy, reliability or suitability.