Toyo Tire Plunges as Building Rubber Fails to Meet Standards

Toyo Tire & Rubber Co. fell by the most in four years in Tokyo trading after disclosing that it supplied a rubber product used as building material that failed to meet certification for protecting against earthquakes.

Rubber-laminated bearings sold by Toyo Tire as certified by the Ministry of Land, Infrastructure and Transport don’t conform to the regulator’s criteria, the Osaka-based tire maker said in a March 13 statement. The company, also a material supplier to apartments, hospitals, warehouses and government buildings said it will work with the ministry in offering exchanges of the product and hired a law firm to conduct a review.

Toyo Tire plunged as much as 18 percent, the biggest intraday drop since a record earthquake struck northeast Japan in March 2011. The shares declined 13 percent at the close in Tokyo, making it the worst performer in the 1,858-member benchmark Topix index. Trading volume for Toyo Tire was the highest since May 2001.

About one-fifth of Toyo Tire’s revenue came from industrial and construction products in 2014, with tires accounting for the rest, according to data compiled by Bloomberg. Tire sales have gained 44 percent since 2011, while revenue from industrial and construction products has expanded about 5 percent.

The products that failed to meet certification standards account for less than 1 percent of sales, Japan Credit Rating Agency Ltd. said in statement. The company has a stable outlook on Toyo Tire’s A- credit rating and said it’s difficult to estimate the tiremaker’s cost to cope with this problem at this moment.

Japan’s real estate developers stepped up adoption of higher quake-absorbing building methods following the 2011 magnitude-9 earthquake, which triggered a tsunami and left almost 20,000 people dead or missing. Using rubber bearings in building foundations helps them shift seismic energy to avoid major damage.

55 Properties

The rubber bearings were delivered from July 2004 through February of this year and used in 55 properties, Toyo Tire said in its statement, without identifying buildings.

The 2011 earthquake caused no damage to three buildings in the eastern Japan city of Sendai that used Toyo Tire’s material, implying the buildings probably don’t face an immediate threat, said Junya Narita, deputy director for housing production division at the land ministry. The lack of damage also contributed to the decision not to name the buildings, Narita said.

“We do not think there is immediate danger that the buildings will collapse,” Takashi Imamura, senior deputy director of the Ministry of Land, Infrastructure, Transport and Tourism, said by phone. “We directed the company to examine the strength of earthquake protection rubber devices as soon as possible.”

The company has stopped producing the devices and may be able to report an update on its investigation in two or three weeks, Haruhiko Kitagawa, general manager of corporate planning for Toyo Tire, said by phone.

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