Money This Is How the Kobe Steel Scandal Is Playing Out in Markets

13:21  11 october  2017
13:21  11 october  2017 Source:   Bloomberg

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More than a third has been wiped from Kobe Steel ’s stock- market value, in a record two-day slide. Read how the once revered Japan Inc. is seeing its image get shredded by scandals .

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Free Fallin' © Provided by Bloomberg LP Free Fallin'

The impact of the scandal at Kobe Steel Ltd. is gathering pace.

Leading customers from Shinsho Corp. to Mitsubishi Corp. have been sucked into Kobe’s false product data debacle, triggering outsized moves in debt, credit and equity securities associated with Japan’s third-largest steelmaker by output and sales.

More than a third has been wiped from Kobe Steel’s stock-market value, in a record two-day slide.

Kobe Steel disclosed Sunday that its staff had falsified data about the strength and durability of some aluminum and copper products, and said Wednesday that iron ore powder data may also be suspect. While JPMorgan securities Japan Co. estimates the cost of replacing the parts could be as much as 15 billion yen ($133 million), the reputational cost and potential lawsuits stemming from the disclosures could cost Kobe Steel far more.

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The timeline of how the scandal emerged, meanwhile, seems to betray a disregard for end consumers. On Aug. 30, Kobe Steel 's management team, including Chairman and President Hiroya Kawasaki, received a Sector: Industry: Non-Energy Minerals Steel . Market cap(USD): 3,453.50M. Shares

Read how the once revered Japan Inc. is seeing its image get shredded by scandals.

Bond yield premiums at the steelmaker have also jumped to records, with the spread on notes due November 2021 jumping 148 basis points to about 202.5 on Tuesday, according to data compiled by Bloomberg. The cost of buying protection against a default for Kobe has also surged, jumping more than 180 basis points to a 19-month high for five-year swaps, the data show.

Credit Risk Spikes © Provided by Bloomberg LP Credit Risk Spikes

Shares of Kobe Steel’s top customers, based on their contribution to the steelmaker’s revenue, are starting to sink. Shinsho, Kobe Steel’s biggest customer by sales, is down 25 percent this week while Mitsubishi has lost some $780 million in value. Toyota Motor Corp., the No. 3 buyer, also slipped.

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Kobe Steel says data falsification scandal linked to copper and aluminium shipments may go back at least ten years. Weinstein Case Shows How Hard It Is to Call Out Powerful in Business. European markets slip as Spain's constitutional crisis keeps investors on edge.

Kobe Steel Fallout Spreads © Provided by Bloomberg LP Kobe Steel Fallout Spreads

For now, investors in overseas customers of Kobe Steel are less worried. General Motors Co. and Ford Motor Co. -- rounding out the top five buyers of the company’s products -- are up about 0.6 percent for the week, with General Motors touching a record Oct. 9 after Kobe’s initial disclosure.

U.S. Shares Unfazed by Kobe Scandal © Provided by Bloomberg LP U.S. Shares Unfazed by Kobe Scandal

Boeing Co., which uses wings from affected supplier Subaru Corp. in jets including the Dreamliner, said it is checking its supply chain and has found no safety concerns so far. The aircraft manufacturer’s stock climbed 1 percent to a record Tuesday.

--With assistance from Livia Yap and Andrew Monahan

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Adam Haigh, Emma O'Brien

©2017 Bloomberg L.P.

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