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Toshiba to delay sale of semiconductor unit, faces TSE demotion

Cash-strapped electronics giant Toshiba Corp. has decided to put off selling its semiconductor unit until April or beyond, while the firm is also expected to be dropped to the Tokyo Stock Exchange (TSE)'s second section as it closes out fiscal 2016 in a state of insolvency.

Toshiba had planned to sell its semiconductor business by the end of March this year, giving the firm a cash injection before it closed out the books on the fiscal year. However, management has ultimately decided to move more slowly in hopes of getting Toshiba better terms on the sale.

In its financial forecast for the first three quarters of fiscal 2016 released on Feb. 14, Toshiba revealed an estimated capital shortfall of 1.91 trillion yen as of the end of December last year, driven primarily by a projected loss of some 712.5 billion yen in its U.S. nuclear business. To raise capital to plug the hole in its balance sheet, Toshiba had intended to spin off its semiconductor unit and sell less than 20 percent of the shares in the new firm. However, President Satoshi Tsunakawa told a Feb. 14 news conference that Toshiba was considering selling a majority stake in the semiconductor spinoff.

Toshiba opened bidding this month, and around 10 firms had expressed interest. However, as only 20 percent of the spinoff was being made available, most of the firms' appeared lukewarm about shelling out a high purchase price. Faced with the possibility that the sale would not raise enough cash, Toshiba switched to offering a majority stake, and will move both to renegotiate with the firms already interested and to attract new bidders.

The change of plans, however, likely means Toshiba will have to delay the sale until beyond the close of fiscal 2016, as it will take time to rerun the bidding and, because the firm is selling a majority stake in the semiconductor spinoff, the deal must be reviewed by the Fair Trade Commission. Toshiba has also decided to prioritize holding out for the best possible terms on the sale, accepting that the delay will mean the firm will lose its prestige spot on the first section of the TSE. Management expects the process to select a winning bid will take up to a year.

Major banks backing Toshiba are also prioritizing long-term efforts to stabilize the company's financial footing, and appear prepared to keep financing the firm even if it is in a state of insolvency.

However, should Toshiba fail to pull itself out of insolvency in fiscal 2017, it will be removed from the TSE altogether, and the company will face a live-or-die moment.

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