The scandal engulfing Kobe Steel (5406.JP) deepened on Wednesday with reports that the falsification of product data may also involve its iron powder products. Shares in the steelmaker plummeted 20% to JPY853 a share, adding to Tuesday’s 22% loss.
Japan’s third largest steel maker admitted over the weekend to falsifying data on the strength and durability of aluminum and copper products supplied to its customers, which include car makers Toyota, Honda, Subaru and Nissan.
As yet, the financial implications of the scandal are difficult to gauge as it would depend on recall costs the company would have to bear and what other measures the company may have to implement, according to Nomura analyst Yuji Matsumoto. In a note to clients Matsumoto wrote:
The volumes announced by the company represent 5% of rolled and extruded aluminum products and 1.5% of copper products in 17/3. We forecast that the aluminum & copper segment will account for 19% of total sales and 23% of recurring profits in 18/3. On that basis, we do not see any serious impact on near-term earnings provided the scandal only involves the volumes announced by the company. However, we need to bear in mind that the Nikkei reported that some data falsification had been taking place over a much longer timeframe.
Matsumoto noted the reputational damage the company could suffer given its not the first time it has been involved in multiple data falsification scandals. In 2016, Kobe Steel announced that affiliate Shinko Wire Stainless had falsified data pertaining to tensile strength testing of some wire for springs over a period of nine years and that it shipped products that were not compliant to Japanese Industrial Standards. In 2006, it admitted to falsifying emission data from at its Kakogawa steel works over a period of five years.
Kobe Steel falsifying data is the latest scandal to hit Japan Inc. In 2015, Takata admitted to withholding key details about faulty airbags, which led to the company filing for bankruptcy earlier this year after the faulty components were linked to several deaths and prompted the recall of tens of millions of vehicles. Also in 2015, Toshiba Corp. was fined an unprecedented JPY 7.4 billion by Japan’s regulators after finding that the giant manufacturer of nuclear power plants and semiconductors misled investors by filing false financial statements. Its nuclear power division filed for bankruptcy protection in the U.S. earlier this year. And just last week, Nissan Motor recalled 1.2 million cars because unauthorized inspectors signed off on quality checks.
Meanwhile, the Nikkei Asian Review reports that Kobe Steel intends to put its real estate business on the block in an effort to shore up already shaky finances now threatened by the data falsification scandal. Wholly-owned Shinko Real Estate could fetch around JPY50 billion according to the report.
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