Utilities vow to finish reactors despite Westinghouse woes

Toshiba Corp's U.S. nuclear unit, Westinghouse Electric, filed for Chapter 11 bankruptcy in NY court after the Japanese company warned of a possible US$6.2bil writedown on the nuclear energy business.

Westinghouse hoped the AP1000 would become the centerpiece of China's ambitious nuclear strategy, and expected to win dozens of new projects. Westinghouse has been hurt by construction delays and problems for its next-generation AP1000 reactors being built for the Southern Co.at Plant Vogtle in Georgia and for SCANA at VC Summer plant in SC. USA regulators and countries around the world were then also evaluating other proposals for nuclear projects.

Toshiba acquired Westinghouse in 2006 in a deal worth 5.4 billion US dollars at a time when the USA government had unrolled a number of allowances to support nuclear developers.

Westinghouse said in a court filing it has secured $800 million in financing from Apollo Investment, an affiliate of Apollo Global Management, to fund its core businesses during its reorganization. The U.S. company will no longer be under Toshiba's control and will be stripped out of its financial results, the Japanese conglomerate said.

Last month, Toshiba had said it was expecting a loss of $4.3 billion for April-December of a year ago, including a $6.2 billion hit from its nuclear business.

Toshiba said it would guarantee up to US$200 million of the financing for Westinghouse.

One investor pointed out the firm described both the chip and nuclear businesses as core units of Toshiba just previous year.

The U.S. business is at the heart of the collapse, stemming from the ill-conceived acquisition of a U.S. nuclear construction company in 2015. Citing people familiar with the matter, Reuters said the money can not be used to repay the liabilities related to cost overruns at the power plants.

But Tsunakawa moved to assuage fears among investors and shareholders by saying the company has a plan for avoiding a negative net worth in fiscal 2017.

"Our preferred option is to finish the plants".

The company's reputation has also been tarnished in recent years by a scandal over the doctoring of accounting books to meet unrealistic profit targets.

States regulators have approved costs of roughly $14 billion for each project, but Morgan Stanley has estimated the final bill of approximately $22 billion for the SC project, and around $19 billion for the Georgia facility, the Journal reported.

The future is looking dimmer for Toshiba's nuclear unit Westinghouse. They cautioned that the sale process will likely be highly complex and litigious.

The move will trigger complex negotiations between the Japanese conglomerate, its US unit and creditors, and could embroil the USA and Japanese governments, given the scale of the collapse and US government loan guarantees for new reactors.

Following the reports, shares of Toshiba Corporation climbed two per cent after the mid-session break at the Tokyo Stock Exchange, reversing the downtrend with which it began the day, Efe news reported.

NuGen, a joint venture between Toshiba and French utility Engie has also come under doubt since Japan's Toshiba said last month it planned to pull out of the construction work at the British plant after posting a $6.3 billion writedown on Westinghouse, which has been hit by billions of dollars in cost overruns at new nuclear plants.

But costs for the reactors increased after stricter safety standards were put in place in the wake the 2011 Fukushima nuclear accident in Japan.

The "risks" that Westinghouse's financial woes present specifically for Toshiba come amid a bigger downturn in the global nuclear sector. This was at a time when the overall conglomerate logged a group operating loss of 708.74 billion yen. The spokesman of the Japan's government expected that there would be a discussion between both parties.

Its president, Satoshi Tsunakawa, told the meeting: "We apologise to all stakeholders, including shareholders, for causing this trouble". Toshiba believes the unit will be worth at least ¥2 trillion, he added.

  • Zachary Reyes