Mitsubishi Books $3.8 Billion Impairment, Expects Loss

  • Net loss of 150 billion yen expected for current fiscal year
  • Mitsubishi had forecast 300 billion yen profit in February

Mitsubishi Corp., Japan’s largest trading house, expects to book an impairment charge of 430 billion yen ($3.8 billion) primarily on its metals and energy businesses to reflect the plunge in commodity prices, leading to a first-ever annual loss for the company on a group basis.

The net loss will likely total 150 billion yen in the 12 months ending March 31, compared with net income of 400.6 billion yen the previous year, according to a regulatory statement issued Thursday by the Tokyo-based trader. As recently as February, Mitsubishi was forecasting annual net income of 300 billion yen.

“There is not much optimism in the commodities sector, but among the general trading companies, Mitsubishi will be able to continue to be competitive,” Fumio Matsumoto, a fund manager at Dalton Capital Japan Inc. in Tokyo, said on Thursday before the announcement.

The writedown underscores the predicament Japan’s “sogo shosha,” or general trading houses, find themselves in after making heavy investments in metals and energy at the height of the commodities boom, only to see prices tumble. The Bloomberg Commodity Index, a measure of returns from 22 items, has dropped about 40 percent in the last two years, earlier this year touching the lowest level since 1991.

“Resource prices were lower than we expected,” President Ken Kobayashi told reporters in Tokyo on Thursday, while also predicting a continuation of the slump.

In Mitsubishi’s case, the trader booked a 280 billion yen writedown on its copper business in Chile and a 40 billion yen writedown in a liquefied natural gas project in Australia. Major losses are also seen in Australian iron ore.

Compensation Cut

Compensation for all executives will be cut by 30 percent, said Kobayashi, who’ll take a 50 pay reduction. The company maintained its base annual dividend of 50 yen per share in the current fiscal year.

Mitsubishi, whose shares fell by the most in more than a month on Thursday, isn’t alone among Japan’s trading house in being squeezed by ill-timed commodities investments. Mitsubishi’s shares have declined about 32 percent since their most recent peak in June, while the benchmark Nikkei 225 stock average has dropped 17 percent in the same period.

Marubeni Corp. announced a 72 billion yen impairment mainly on its oil and gas businesses in February.

“Mitsubishi’s share price has hit rock bottom” with most resource-related writedowns now behind it, said Polina Diyachkina, an analyst at Macquarie Group Ltd. The company’s stock “will increase because investors have been waiting for this, and you also have positive catalysts such as the new mid-term plan and a potential dividend hike.”

On Wednesday, rival trading house Mitsui & Co. booked 260 billion yen in one-off charges and forecast its first net loss since it was founded in its modern form in 1947. Sumitomo Corp., another trader, took a 77 billion yen writedown at a nickel project in Madagascar earlier this year.

Before it's here, it's on the Bloomberg Terminal.