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Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

In a country where government bailouts are common and with an alluring semiconductor unit that could net billions, Toshiba Corp. will probably stay in business even as it reels from record losses and the bankruptcy of its Westinghouse Electric nuclear energy unit.

But a more pressing worry for investors is that with negative shareholder equity of 225.7 billion yen ($2.1 billion) for the third quarter, one of Japan Inc.'s fastest-fading stars is headed straight for another demotion -- out of blue-chip status and into a much less liquid section of the Tokyo Stock Exchange. It's going to be goodbye BlackRock Inc., and hello Mrs. Watanabe.

If Toshiba's shareholder equity stays negative for the fourth quarter ended March 31 -- and there's a big chance it did -- it loses its Topix listing, which of course may happen anyway if it keeps missing results reporting deadlines.

The Other Side of the Looking Glass
The value of Toshiba shareholders' equity just turned negative
Source: Bloomberg
Note: Shown net of equity attributed to non-controlling interests.

Being relegated to the so-called second section of the TSE means a less liquid universe of investors, devoid of exchange-traded and passive-index funds. The second section's free float market capitalization is less than 1 percent of the Topix, and according to Travis Lundy, an analyst who publishes on Smartkarma, Toshiba could see between 12 and 15 percent of its free float shareholder base, which consists of passive investors in Topix index funds, disappear from the register.

Although the Japanese company's biggest owner currently is activist hedge fund Effissimo Capital Management Pte, which disclosed Friday it boosted its stake to 9.8 percent, Toshiba has historically been a favorite of more staid institutions, like BlackRock and JPMorgan Chase & Co.

Big and Boring
Toshiba's top shareholders include global funds like Capital Group, BlackRock and JPMorgan
Source: Bloomberg
Note: GPIF is Japan's Government Pension Investment Fund; Effissimo is a hedge fund set up by former colleagues of Japanese activist investor Yoshiaki Murakami.

Unlike Sharp Corp., whose travails saw it also moved to the second section, a foreign rescue of Toshiba is probably not on the cards. But equally, the company's warning Tuesday that it may not be able to continue as a going concern because of losses from its Westinghouse Electric nuclear business needs to be taken with a grain of salt.

Toshiba, which traces its roots to 1875 as Japan's first manufacturer of telegraph equipment, will likely be the recipient of some sort of government bailout, or at least the offer of one. That was the case with Sharp, before Foxconn Technology Group's buyout, and Tokyo Electric Power Co. in the wake of the Fukushima nuclear disaster. And while authorities in Tokyo aren't keen for the Chinese to buy Toshiba's chip business, the unit will have plenty of other suitors.

In the meantime, Toshiba's inevitable slide into share market obscurity should concern investors. Large companies with negative shareholder equity aren't unheard of in the West, with names like McDonald's Corp. and Air France-KLM in the club. The big difference is most are actually making money.

As a second-section member, Toshiba can expect more retail investor participation, and increased stock volatility. Reduced liquidity will make it harder, and costlier, to raise funds. Plus there's the prestige, or lack of it. A 142-year-old company, and it's come to this. Whichever way you cut it, the outlook doesn't look good.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net