March 27, 2020 / 5:33 AM / 13 days ago

Mitsui may book up to $642 million impairment loss amid oil slump

TOKYO (Reuters) - Japanese trading house Mitsui & Co Ltd (8031.T) said on Friday it may book an impairment loss of 50 billion to 70 billion yen ($458 million to $642 million) in the year ending March 31 due to falling commodity prices and coronavirus impact.

FILE PHOTO: The logo of Japanese trading company Mitsui & Co. is seen in Tokyo, Japan, January 10, 2018. REUTERS/Toru Hanai

Mitsui said it is likely to book an impairment loss on its stakes in the Eagle Ford shale oil and gas project in the United States and the Tempa Rossa oil field in Italy among other oil and gas projects due to plunging oil prices.

International benchmark oil prices LCOc1 have more than halved since the start of the year as the rapid spread of the coronavirus interrupts business activity, while a crude glut swelled after the collapse of an output deal between the Organization of Petroleum Exporting Countries and Russia (OPEC+). [O/R]

Mitsui also said it may book an impairment loss on fixed assets as well as an appraisal loss on shareholdings to reflect slumping stock markets.

“The environment for our trading operations is deteriorating due to slower manufacturing activity amid weakening demand, disorder of distribution and impact on procurement of raw materials, but we have not recognized any events that could have a significant impact on our earnings this year,” it said.

In early February, Mitsui forecast 450 billion yen in net profit for the current financial year.

“We are still reassessing the overall impact on our full-year profit forecast,” a Mitsui spokesman said.

The company said in a statement it will maintain its dividend forecast of 40 yen per share for the second half of the year.

Shares in Mitsui rose 3.1% to 1,600.0 yen by 0347 GMT on Friday after the company's announcement. The broader TOPIX index .TOPX was up 2.2%.

The announcement comes two days after peer Marubeni Corp (8002.T) forecast a record net loss of 190 billion yen for the current year as the coronavirus outbreak drives an unprecedented oil price slide and falls in other commodity prices.

Analyst Thanh Ha Pham at Jefferies said after Marubeni’s new guidance that “there is a real risk other trading companies will follow Marubeni’s example and might decide to impair assets.”

Reporting by Yuka Obayashi; Editing by Christopher Cushing and Stephen Coates

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