Japan prosecutors charge Kobe Steel in fake data scandal

Kobe Steel has said a zealous pursuit of profits, unrealistic targets and an insular corporate culture were behind the scandal. (AFP)
Updated 19 July 2018
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Japan prosecutors charge Kobe Steel in fake data scandal

TOKYO: Japanese prosecutors charged major steelmaker Kobe Steel Thursday with violating laws overseeing competition in a massive faking of product data.
Kobe Steel, which has repeatedly apologized for the practice, said in a statement that it took the allegations seriously and was working to prevent a recurrence.
“We once again deeply apologize,” it said, without elaborating on specific charges. “The entire Kobe Steel Group is working together sincerely.”
The systematic misconduct spanned years, affecting products sent to more than 680 companies, including aluminum castings and copper tubes for autos, aircraft, appliances and trains.
The scandal, which surfaced last year, has set off a class-action lawsuit and an investigation in the US.
Kobe Steel has said a zealous pursuit of profits, unrealistic targets and an insular corporate culture were behind the scandal.
There have been no reports of accidents or injuries related to the fake data.
Charges were not filed against any individuals, though the company has said managers who knew of the wrongdoing intentionally looked the other way.
The systematic faking of data took place at various plants throughout Japan, according to the prosecutors and the company. Kobe Steel launched an internal investigation and released the findings earlier this year.
The scandal was a major embarrassment for a famous brand in a nation built on quality “monozukuri,” a phrase likening manufacturing to a craft or a science.
Kobe Steel has promised each employee will return to “the roots of monozukuri” to win back trust.
If found guilty in a court, the company could be fined. It is not clear how much.
The chief executive at Kobe Steel and several other executives resigned over the scandal. Some managers took pay cuts.
Quality control woes have been rife at other top Japanese brands, including Nissan Motor Co. Nissan has acknowledged that illegal vehicle inspections occurred for years at its plants in Japan.


India’s small renewables firms fighting consolidation wave

Updated 24 min 52 sec ago
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India’s small renewables firms fighting consolidation wave

  • With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall
  • Besides loans, other funding options have been dead ends for the smaller companies, further limiting growth opportunities

MUMBAI: Small to mid-sized renewable energy companies in India are starting to look like attractive takeover targets as lenders and investors withhold funds, worried by the stiff competition, weak bond markets, low tariffs and high debt besetting the sector.
The small companies’ difficulty in raising cash is keeping them away from government power project auctions, restricting their growth and crippling their ability to refinance loans, said a consultant from a top global consultancy firm.
With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall, potentially keeping India from its renewable energy targets, said the consultant, who did not wish to be named as he is directly involved with a company that canceled a bond issue.
“India’s solar industry is becoming a big boys’ club,” said Rahul Goswami, managing director of Greenstone Energy Advisers.
In a few years, there may be only a few big companies and a few regional firms active in India’s renewable sector, he said.
The trend goes back at least to 2016, when Tata Power bought solar and wind company Welspun Renewable Energy, but the pace is expected to pick up.
“Smaller players are being squeezed out ... due to two main factors: cost of equipment and ... financing,” said Alok Verma, executive director at Kotak Investment Banking, an arm of Kotak Mahindra Bank.
One of India’s largest renewables companies, Greenko Group, said in June that it was buying 750 megawatts (MWs) of solar and wind assets from Orange Renewables, because the Singapore-based company saw few opportunities for growth. The deal has yet to be closed.
Essel Infra, with a renewable power capacity of 685 MWs, and Shapoorji Pallonji Group’s 400-MW solar arm are also in talks to sell off their assets, one firm and two banks doing the due diligence for these companies have said.
Besides loans, other funding options have also been dead ends for the smaller companies, further limiting growth opportunities.
ACME Solar postponed an initial public offering (IPO) announced in September last year as the proposed share issue did not generate enough interest from investors, confirmed a banker who was directly involved in the listing attempt.
Mytrah Energy, a major mid-sized renewables company, called off a $300 million to $500 million bond issue earlier this year as that option also went dry for the sector, and it canned IPO plans as well, said a separate banker directly involved there.
The companies have all declined to comment.
This dearth of financing and trend toward consolidation could be a significant threat to India’s target of 175 gigawatts (GWs) of renewables capacity by 2022, up from 71 GWs now, some analysts said.
Others said a concentration of bigger players, with more cash and better financing, could mean things move faster.
“Consolidation in the renewable energy industry augurs well for the overall success of the program ... Large players have access to required capital at reasonable rates and can procure the latest technology,” said Debasish Mishra, head of Energy, Resources and Industrials at Deloitte Touche Tohmatsu India.
Tata Power, one of India’s largest power generators, said in May it plans to invest $5 billion to increase its renewable capacity in India fourfold over the next decade to 12 GWs.
More than doubling India’s renewables capacity by 2022 will require $76 billion, including debt of $53 billion, the Ministry of New and Renewable Energy said in July.
Another problem in India’s renewable sector is debt.
“Many mid-sized firms have taken debt to fund their equity,” the partner of an investment firm said, adding that many such companies will need financial restructuring or have to put themselves up for auction.
This model of financing debt through equity is called mezzanine financing and tends to involve high interest rates and an option to convert debt to equity in future.
Both ACME and Mytrah are funded by Piramal Finance Ltd. via mezzanine financing, according to statements by the companies at the time of funding.
For lending banks, this quasi-equity is seen as debt, making the liabilities of these companies look higher than usual, said the partner, who asked not to be named. The investment firm handles all kinds of financing, including mezzanine.
When companies with mezzanine financing go to banks for funds for upcoming projects, banks ask them for higher collateral or offer less cash in loan, said Kotak’s Verma.
Fitch Solutions said in a note last week that India would likely miss its renewable capacity targets due to “risks stemming from bureaucratic, financing and logistical delays.”