A man walks past the signboard of Kobe Steel at the group's Tokyo headquarters in Tokyo, Japan ON October 10, 2017. Picture: REUTERS
A man walks past the signboard of Kobe Steel at the group's Tokyo headquarters in Tokyo, Japan ON October 10, 2017. Picture: REUTERS

Tokyo — Kobe Steel has received a request from the US Department of Justice for documents related to falsified product data.

The company said on Tuesday that it would co-operate with the US investigation and it could not yet quantify the impact of the scandal on its earnings.

The US request marks an escalation in a crisis that risks engulfing Japan’s third-biggest steel maker, whose products are used by US automotive giants such as Ford and General Motors, and by the nation’s biggest plane maker, Boeing.

Kobe has said about 500 companies worldwide are in a supply chain tainted by its admissions that it faked certifications on the strength and durability of metals gong back at least to 2007.

Kobe’s investigation into falsified data will probably reveal the practice began before then, according to a company executive.

As the steel maker works to contain the fallout from the crisis, it has briefed analysts that short-term liquidity is not an issue as it seeks to generate cash including via asset sales.

Kobe’s global review of its units was likely to show further instances of data falsification, the executive said, asking not to be named as the information was not public.

The Nikkei newspaper reported on Tuesday that irregularities over quality control at Kobe’s plants in Japan dated back decades, citing a person it did not identify.

Kobe Steel was also considering the sale of its real estate unit, the executive said.

Jefferies Japan analyst Thanh Ha Pham said that, while the company had enough cash and funding to cover short-term needs, it was looking to raise money by lowering working capital and through asset sales, according to a note that followed a briefing with Kobe’s management on Monday.

Last week Kobe’s stock plummeted 41% as investors rushed to punish the latest instance of corporate malfeasance in Japan, following similar misconduct over data at companies such as Mitsubishi Motors and Asahi Kasei.

Kobe has since pared those losses, closing 3.1% higher in Tokyo on Tuesday for a two-day gain of 6%.

Kobe Steel could face losses of as much as ¥200bn ($1.8bn) in a worst-case scenario arising from its misconduct, according to Nomura Securities, while the Japan Credit Rating Agency has placed the company’s A rating on watch for a possible downgrade.

Nomura’s tally assumes customers would be forced to recall products and then have Kobe assume the cost, and that it will have to pay compensation, including to investors, credit analyst Shintaro Niimura said in a report Monday.

The bank estimates that about 30% of Kobe’s aluminium and copper, two of the metals subject to data falsification, is bought by car makers.

Capital adequacy

Still, with about ¥700bn in capital, the worst case would put only a dent in Kobe’s capital-adequacy ratio, which would fall from 30% to 23%, according to Niimura.

He cautioned that losses could widen if evidence came to light that the scandal had affected more products than reported so far by Kobe, which on Friday added another nine, list, including core steel products, to take the list to 16.

The units implicated in the crisis make the steel, copper, aluminium and other materials that account for over half the company’s revenue.

Kobe’s property unit, Shinko Real Estate, had fixed assets of ¥89.9bn, according to a March filing.

The company was considering a number of sales options for the business, which leases and sells real estate, including a full divestment, according to the executive, although he said the sale was not linked to the company’s wider problems.

None of Kobe’s customers has so far raised specific safety concerns or recalled products.

Jefferies’ Pham cited management as saying that customer feedback, including from beverage can producers and railway companies, was that no immediate recalls were required and that products involved were not a safety concern.

Some of Japan’s biggest car makers — Toyota, Nissan Motor and Subaru — are investigating whether any car parts contain falsified materials from Kobe, according to company spokespeople.

Toyota supplier Denso is also checking its products, while Tokyo Metro and Seibu Railway are investigating whether Kobe’s aluminium parts are used in their trains.

Kobe Steel declined to comment on the details of the analyst meeting on Monday.

A spokeswoman said it was investigating past records to determine the cause of the falsifications.

Japan’s Ministry of Economy, Trade and Industry has asked the company for a report on the scandal including causes and remedies.


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