Kobe Steel’s fake data scandal expanded to its core business after the Japanese company admitted “inappropriate actions” related to steel wire produced overseas, triggering a fresh collapse in its shares and heightened speculation that the steelmaker may get broken up.
Customers have been informed about the issue, which has been resolved, Tokyo-based spokeswoman Eimi Hamano said by phone, declining to provide details. Kobe Steel falsified quality certification data for steel wire used in auto engines and to strengthen tires, the Nikkei newspaper reported Friday.
Kobe’s admission of misconduct in its steel business, which accounts for about a third of revenue, ratchets up the pressure on Japan’s third-biggest steelmaker. The company’s disclosures had up until now dealt with aluminum, copper and iron ore products used in everything from cars to computer hard drives to Japan’s iconic bullet trains, although there haven’t been any reports of products being recalled or safety concerns raised.
The deepening scandal “suggests that this is company culture, not just the actions of a few rogue employees,” Alexander Robert Medd, managing director at Bucephalus Research Partnership in Hong Kong, said by email. The question to be resolved is “were they trying to save money or just unable to produce the right spec in the right quantities,” he said.
Kobe’s shares have plunged 42% this week, including a 9.1% drop on Friday, after it revealed on Sunday that it had fudged data on the strength and durability of metals supplied to as many as 200 customers around the world, including Toyota, General Motors and space rocket-maker Mitsubishi Heavy Industries.
The latest company to comment on its links to Kobe, Ford Motor, said Friday it used aluminum from the company in its Mondeo car hoods in China, although it hasn’t confirmed whether the parts were compromised.
The affair has wiped $1.9 billion from the Japanese firm’s market value and led to speculation it could be broken up.
“This will come out in a trade sale and I suspect will lead to write-offs,” according to Medd of Bucephalus Research, who said he’s concerned that a breakup of the business may not cover its liabilities from the scandal.
Investigations have been completed on about 100 of the companies that Kobe supplied, CEO Hiroya Kawasaki said Thursday. Falsified aluminum was shipped to more than 30 overseas firms including Tesla Inc., Daimler PSA Group, Boeing Co., Airbus and General Electric the Nikkei reported Friday, without saying where it obtained the information.
CEO Kawasaki is scheduled to hold another briefing in Tokyo on Friday evening to disclose details about the misconduct related to steel wire and other findings, spokeswoman Hamano said. The crisis raises fresh concerns about the integrity of corporate Japan, which has weathered accounting scandals at Olympus Corp. and Toshiba Corp., to Takata Corp.’s bankruptcy due to faulty airbags and a swathe of recalls from the nation’s top automakers.
“If you look at the other previous things like this, whether it be Takata or Toshiba, despite companies initially saying it is a single one-off, it has always expanded to more and more parts of the business,” Bucephalus’ Medd said earlier this week. “And one usually finds out that it is reasonably systematic.”
The cost to protect Kobe Steel’s bonds against non-payment has risen nearly 250 basis points this week to 305 as of Friday, the highest in 20 months, according to credit-default-swap traders and CMA data. The extra yield investors demand to hold the notes due February 2022 over government securities also hit a record 234.4 Thursday, according to data compiled by Bloomberg. That brings its advance from last Friday to 177 basis points.
SMBC Nikko Securities said in a note the new revelations around steel wires could be “quite negative” for Kobe Steel’s creditworthiness as the company holds roughly half of the global market share for the wires used in valve springs of auto engines. If doubts arose over the safety of the wires, it could “shake the foundation” of the company, according to chief credit analyst Takayuki Atake.