Dec. 12 (Bloomberg) -- IHI Corp., Japan's third-biggest maker of heavy equipment, slid to a two-year low in Tokyo trading on concern it may be delisted after reporting 30 billion yen ($268 million) of unexpected project costs.

IHI fell 11 percent to 216 yen on the Tokyo Stock Exchange, the lowest since Oct. 6, 2005. The company, which builds equipment ranging from boilers to liquefied natural gas terminals, said after the market close that it posted a 5.63 billion yen operating loss in the last fiscal year instead of a profit.

The company was placed on a ``watch list'' for delisting and will be investigated by the Tokyo Stock Exchange, after reporting the losses from engineering projects. Japan's Securities and Exchange Surveillance Commission may ask regulators to impose a fine of as much as 1 billion yen for allegedly falsifying earnings, Kyodo News reported, citing unidentified people.

``The exchange's warning shocked investors,'' said Yasuhiro Matsumoto, an analyst at Shinsei Securities Co. in Tokyo who doesn't rate the stock. ``The focus will be on whether additional losses will be incurred and whether IHI was involved in any wrongdoing, such as hiding losses on projects.''

IHI previously reported a 24.6 billion yen profit for the year ended March 31, 2007, according to a statement to the Tokyo Stock Exchange today. Sales were revised to 1.22 trillion yen from 1.23 trillion yen.

``There was no evidence the company deliberately hid additional losses,'' said Tetsuo Kawawa, chairman of a four- member external panel commissioned by IHI to investigate additional losses.

The charges were related to repairs at a cement plant in Saudi Arabia and delays on boiler projects, the company said.

No Contact

``The commission hasn't contacted IHI about the issue yet,'' spokesman Keiichi Sakamoto said today. ``We'll sincerely respond to investigations by the Tokyo Stock Exchange and make efforts to recover trust from investors as soon as possible.''

An official at the Securities and Exchange Surveillance Commission said the watchdog ``refrains from making comments on individual cases.'' He declined to be named because of the agency's rules.

The stock was the largest decliner in Asian trading hours on the 1,961-member MSCI World Index today.

The perceived risk of Tokyo-based IHI defaulting on its debt rose to the highest on record. Credit-default swaps tied to IHI increased 22.5 basis points to 82.5 basis points in Tokyo, according to Deutsche Bank AG prices, the highest since Bloomberg began tracking the data in 2003.

The contract's previous high was 77.5 basis points in March 2003, according to Bloomberg data.

IHI will continue to be included in the Nikkei 225 Stock Average, the Nikkei Stock Index 300 and the Nikkei 500 Stock Average at least ``for the time being,'' Nikkei Inc., the compiler of the indexes, said yesterday.

Punitive Measures

IHI, which raised 61 billion yen in share sales in January and February to fund expansion of its jet-engine and car- turbocharger businesses, didn't expect the higher costs when it sold the stock, Chief Executive Officer Kazuaki Kama said at a news conference in September.

Kama, who took office on April 1, ``cannot avoid management responsibility,'' Shinsei's Matsumoto said.

The chief executive officer won't be paid for six months to take blame for losses, IHI said after the market close today. Five other executives will take pay cuts of 10 percent to 30 percent for six months, the company said.

Mototsugu Ito, former president and now chairman, will resign from Dec. 31 to become an adviser to the company.

``We feel very sorry to put concerns and troubles to our stakeholders,'' Kama said at a press conference in Tokyo. ``We face an unprecedented crisis in our 150-year history,'' he said.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Gregory Turk in Tokyo at gturk2@bloomberg.net.

Last Updated: December 12, 2007 07:05 EST