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UPDATE 7-Huge nuclear cost overruns push Toshiba's Westinghouse into bankruptcy
March 29, 2017 / 2:34 AM / 8 months ago

UPDATE 7-Huge nuclear cost overruns push Toshiba's Westinghouse into bankruptcy

    * Westinghouse secures $800 mln in debtor-in-possession
    * Toshiba says Westinghouse liabilities were $9.8 bln as of
    * Westinghouse nuclear projects dogged by delays, cost
    * Toshiba to close first-round bidding for chip business on

 (Adds details from SCANA investor call, comments from
regulators, updates share prices)
    By Tom Hals, Makiko Yamazaki and Tim Kelly
    WILMINGTON, DEL./TOKYO, March 29 (Reuters) - Westinghouse
Electric Co, a unit of Japanese conglomerate Toshiba Corp
        , filed for bankruptcy on Wednesday, hit by billions of
dollars of cost overruns at four nuclear reactors under
construction in the U.S. Southeast.
    The bankruptcy casts doubt on the future of the first new
U.S. nuclear power plants in three decades, which were scheduled
to begin producing power as soon as this week, but are now years
behind schedule. 
    The four reactors are part of two projects known as V.C.
Summer in South Carolina, which is majority owned by SCANA Corp
       , and Vogtle in Georgia, which is owned by a group of
utilities led by Southern Co       .
    Costs for the projects have soared due to increased safety
demands by U.S. regulators, and also due to significantly
higher-than-anticipated costs for labor, equipment and
    Pittsburgh-based Westinghouse said it hopes to use
bankruptcy to isolate and reorganize around its "very
profitable" nuclear fuel and power plant servicing businesses
from its money-losing construction operation.
    Westinghouse said in a court filing it has secured $800
million in financing from Apollo Investment Corp         , an
affiliate of Apollo Global Management        , to fund its core
businesses during its reorganization.
    For Toshiba, the filing will help keep the crisis-hit parent
company afloat as it lines up buyers for its memory chip
business, which could fetch $18 billion. Toshiba said
Westinghouse-related liabilities totalled $9.8 billion as of
    Toshiba said it would guarantee up to $200 million of the
financing for Westinghouse. Toshiba shares closed up 2.2 percent
but have lost half their value since the nuclear problems
surfaced late last year.
    The Apollo loan needs court approval and is expected to
carry Westinghouse for a year, people familiar with the matter
said. The funds would support the company's global operations,
including its healthier services and maintenance businesses, and
pay for construction workers on site in Georgia and South
Carolina, the people said.
    However, the money cannot be used to repay the liabilities
stemming from cost overruns and delays at the projects, the
people said. 
    SCANA told investors on a conference call on Wednesday that
5,000 workers would continue working on its South Carolina site
for 30 days while the company weighed options. 
    "Our preferred option is to finish the plants. The least
preferred option is abandonment,” said SCANA CEO Kevin Marsh.
    Southern Co said in a statement it would hold Westinghouse
and Toshiba accountable for its contract. 
    State regulators have approved costs of around $14 billion
for each project but Morgan Stanley has estimated the final bill
of around $22 billion for the South Carolina project and around
$19 billion for the Georgia plant.             
    Westinghouse’s nuclear services business is expected to
continue to perform profitably over the course of the bankruptcy
and eventually be sold by Toshiba, people familiar with the
matter said. They cautioned that the sale process will likely be
highly complex and litigious. 
    The bankruptcy could embroil the U.S. and Japanese
governments, given the scale of the collapse and the $8.3
billion in U.S. government loan guarantees that were provided to
help finance the reactors.
    The U.S. Department of Energy expects the parties to honor
their commitments, said spokeswoman Lindsey Geisler.
    The Nuclear Regulatory Commission said it was inspecting the
sites to ensure the facilities met the requirements of the
licenses that were issued to units of Southern and SCANA.
    Shares of SCANA were down 0.8 percent at $65.64 and Southern
Co fell 0.4 percent to $49.90 in trading on the New York Stock
    When regulators in Georgia and South Carolina approved the
construction of Westinghouse's AP1000 reactors in 2009, it was
meant to be the start of renewed push to develop U.S. nuclear
    However, a flood of cheap natural gas from shale, the lack
of U.S. legislation to curb carbon emissions and the 2011
Fukushima nuclear accident in Japan dampened enthusiasm for
nuclear power.
    Toshiba had acquired Westinghouse in 2006 for $5.4 billion.
It expected to build dozens of its new AP1000 reactors - which
were hailed as safer, quicker to construct and more compact -
creating a pipeline of work for its maintenance division. 

    Toshiba has said it expects to book a net loss of 1 trillion
yen ($9 billion) for the fiscal year that ends Friday, one of
the biggest annual losses in Japanese corporate history. Toshiba
had earlier forecast a loss of 390 billion yen. 
    Toshiba will close the first round of bids for its chip
business - the world's second-biggest NAND chip producer - on
    A source with knowledge of the issue said that about 10
potential bidders had shown interest, including Western Digital
Corp         which operates a Japanese chip plant with Toshiba,
rival Micron Technology Inc       , South Korean chipmaker SK
Hynix Inc             and financial investors.
    Toshiba CEO Satoshi Tsunakawa said offers for the unit are
likely to allow Toshiba to maintain shareholder equity. Toshiba
believes the unit will be worth at least 2 trillion yen ($18
billion), he added. 
    The government-backed Innovation Network Corporation of
Japan, and Development Bank of Japan are expected to enter later
bidding rounds as part of a consortium, sources said.
    A separate source said that Foxconn          , the world's
largest contract electronics manufacturer, is expected to place
an offer which is likely to be the highest bid. Other sources
have said the Japanese government is likely to block a sale to
Foxconn due to its deep ties with China.
($1 = 111.0600 yen)

 (Reporting by Makiko Yamazaki and Tim Kelly in Tokyo and Tom
Hals in Wilmington, Delaware; Additional reporting by Kentaro
Hamada, Yoshiyasu Shida, Taiga Uranaka, Hitoshi Ishida and Sam
Nussey in Tokyo, Scott DiSavino and Jessica DiNapoli in New
York, Tracy Rucinski in Chicago; Writing by Naomi Tajitsu and
Clara Ferreira Marques; Editing by Noeleen Walder, Edwina Gibbs,
Bernard Orr and Lisa Shumaker)

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