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Toshiba needs to do this to rehabilitate itself

Toshiba Corp. must clear three hurdles to keep its shares from being delisted from the Tokyo Stock Exchange. The shares were demoted to the TSE's Second Section on Tuesday because the company's liabilities were greater than its assets at the end of the fiscal year in March.

The three hurdles are resolving the situation of its liabilities exceeding assets, submitting a financial statement and improving its internal management structure.

Yet an effort to sell off a subsidiary to get the financial situation back in shape is stalled and it is having difficulty getting its auditor to approve its financial statement. It appears that Toshiba's trials will continue.

The most immediate effect of Tuesday's demotion could be felt on Toshiba's stock price.

Unlike when it was in the First Section, Toshiba will no longer be part of major stock indexes, such as the Tokyo Stock Price Index. This means it is less likely to be purchased by life insurance companies and other institutional investors, or by investment trusts that are managed based on the First Section brand. This could increase downward pressure on the stock price, which would affect Toshiba's about 360,000 shareholders.

On Tuesday, Toshiba's stock rose ¥19 to finish trading at ¥265.

However, as this bump came amid a downward trend, it is seen as little more than the result of a spike in buy orders from individual investors and others looking for short-term profits if the stock price rises even a little.

At a press conference in June, Toshiba President Satoshi Tsunakawa said, "We need to be careful that our reliability does not decline."

Leaving the First Section, where many large companies are listed, could hurt the Toshiba brand, make it more difficult to recruit and hold onto workers, and harm employees' morale.

Promotion far off

At the end of March, Toshiba likely had liabilities that exceeded assets by ¥580 billion.

According to TSE rules, if it still has more liabilities than assets come the end of March next year, it will be delisted.

To improve its fiscal shape, Toshiba is seeking to sell Toshiba Memory Corp., a top-earning subsidiary that makes semiconductor memory.

A Japanese-South Korean-U.S. consortium that includes the Innovation Network Corporation of Japan, a public-private fund, had been chosen to receive preferential negotiating rights.

However, opposition from Western Digital Corp., a U.S. company with which Toshiba jointly manufactures semiconductors, has stalled the plan.

A requirement for returning to the First Section is that a company must not have had any false entries on its financial statements in the most recent five years.

Even if Toshiba avoids being delisted, since it was discovered to have engaged in accounting irregularities in 2015, returning to the First Section will be difficult for the time being.

Next focal point

The next focal point on Toshiba's agenda is whether it will be able to submit its financial statement for the fiscal year ending in March 2017 to the Financial Services Agency on time.

The Financial Instruments and Exchange Law sets a submission deadline of the end of June.

However, after Toshiba's auditor, PricewaterhouseCoopers Aarata LLC, refused to approve its financial statement, Toshiba obtained permission from the FSA to extend the deadline to Aug. 10.

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