Financially troubled Toshiba Corp., which is set to spin off its semiconductor unit in a bid to rehabilitate itself, has decided to prioritize sales' negotiations with a Japan-U.S.-South Korea alliance led by the Japanese government-backed Innovation Network Corporation of Japan (INCJ).
The government has used its influence and is set to utilize public funds to make up for a capital deficit incurred by Toshiba as a result of massive losses suffered by its U.S. nuclear power unit.
The government has become involved in the rehabilitation of the electronics giant in an apparent attempt to prevent the drain of semiconductor technology and jobs from Japan. The move also indicates that the government wants to support Toshiba, since it has contributed to national policy through its nuclear power business. However, since the move is feared to result in a financial burden on taxpayers in the future, questions remain as to whether the government's decision is a rational one.
The trilateral alliance comprises INCJ, the Development Bank of Japan (DBJ), U.S. investment company Bain Capital and South Korean semiconductor giant SK Hynix Inc.
The breakdown of the more than 2 trillion yen that the consortium will pay for Toshiba's semiconductor unit remains unclear. However, money to be paid by INCJ and DBJ will come, in a broad sense, from public funds. A company that is supported by such funds should be regarded as a government-backed semiconductor manufacturer.
The failure of Elpida Memory, Inc., a company established through the merger of Hitachi Ltd.'s and NEC Corp.'s semiconductor units, is still fresh in people's minds.
After Elpida Memory fell into financial crisis, DBJ injected 30 billion yen into the company in 2009. Nevertheless, Elpida went bust three years later after losing its price competition with its South Korean rivals, which resulted in a financial burden on taxpayers totaling 28 billion yen.
The Economy, Trade and Industry Ministry, which supervises INCJ, played a leading role in the establishment of Elpida and continued support for the company because the ministry thought the firm was indispensable as a driving force behind Japan's high-tech industry. One cannot help but presume that the ministry is aiming to make sure that the lucrative semiconductor unit that Toshiba is set to spin off will remain in Japan and simultaneously give momentum to the rehabilitation of Toshiba.
The selection of an entity that will take over Toshiba's semiconductor unit only means that the electronic giant will avoid a capital deficit for two consecutive business years, which could lead to the delisting of its stock.
Nearly six months have passed since the discovery that Toshiba had suffered massive losses. The company is now desperate to dispose of the deficit and is preoccupied with getting through necessary procedures. After selling off its profitable semiconductor unit, Toshiba intends to concentrate its business resources on its social infrastructure projects such as elevators and railways. However, specific measures to achieve this still remain unclear. Toshiba's credit capability and employees' morale are believed to be on a gradual decline.
Under such circumstances, Toshiba still cannot dispel concerns about its cash flow and it's possible that the losses of its U.S. nuclear subsidiary could further snowball. The company has failed to submit its asset securities report to authorities for the business year that ended in March 2017, and there's a chance the company's stock could be downgraded to the Second Section of the Tokyo Stock Exchange from the First Section in August. Concerns about whether the company can survive have yet to be eliminated.