TOKYO (Reuters) – The Tokyo bourse mentioned on Wednesday it was taking Toshiba Corp off a particular watchlist, citing improved inside controls – a transfer that lessens however doesn’t fully take away the danger of a delisting for the embattled conglomerate.

However providing a starkly totally different view of Toshiba’s accounting practices, proxy advisory agency ISS mentioned it has advisable that Toshiba’s shareholders don’t approve the agency’s earnings statements for the previous monetary yr after a combined evaluate from its auditor.

Toshiba was positioned on the bourse’s watchlist within the wake of a 2015 accounting scandal. It plunged into disaster once more as of late final yr after billions of in liabilities emerged at its now bankrupt U.S. nuclear unit Westinghouse – issues that additionally raised contemporary accounting considerations.

Aiming to plug the outlet in its steadiness sheet, the Japanese firm final month agreed to promote its chip unit to a consortium led by U.S. personal fairness agency Bain Capital for $18 billion, though the deal nonetheless must clear regulatory critiques and overcome authorized challenges.

“The market had been anticipating that the Tokyo bourse will take away Toshiba from the listing and permit it to stay listed as a result of the agency is simply too huge to fail,” mentioned Masayuki Otani, chief market analyst at Securities Japan.

Not solely does the Japanese authorities see Toshiba’s chip enterprise as important to its nationwide pursuits, the conglomerate’s home nuclear enterprise can be key to the decommissioning of the Fukushima crops broken within the 2011 earthquake and tsunami.

However the Tokyo inventory trade may come beneath additional strain to delist Toshiba whether it is in destructive web value for a second yr in a row on the finish of March – a really actual chance because the chip deal might not achieve regulatory clearance by then and it might wrestle to lift funds by different means.

S&P World Rankings mentioned this month that there was “over a one-in-three probability that Toshiba will fail to obtain sale proceeds and resolve its insolvency by March 31.”

If shareholders don’t log out on Toshiba’s earnings at a Oct. 24 extraordinary assembly as advisable by ISS, that might additionally imperil Toshiba’s means to the get better from the disaster. Japanese shareholders, nevertheless, hardly ever reject proposals by administration.

Auditor PricewaterhouseCoopers Aarata LLC gave Toshiba’s monetary statements a “certified opinion” that endorsed Toshiba’s funds regardless of some minor issues, but additionally made an “hostile” assertion on Toshiba’s inside controls.

“It could be tough to justify help for this decision given the truth that the audit agency has rendered a professional opinion, mainly reflecting the auditor’s view that Toshiba’s monetary statements are usually not correct,” ISS mentioned.

The controversy over Toshiba’s inside controls comes simply as questions over company governance in Japan have taken the highlight once more, with a Kobe Metal Ltd disaster deepening on contemporary revelations of information fabrication.

Individually, Toshiba mentioned on Wednesday it could make investments an extra 110 billion yen ($980 million) within the Fab 6 chip manufacturing line in Yokkaichi, central Japan, on prime of a deliberate preliminary funding of 195 billion yen.

Toshiba additionally mentioned it has not too long ago requested Western Digital’s SanDisk unit whether or not it intends to collectively take part within the funding.

Western Digital, Toshiba’s joint chip enterprise accomplice, objects to any sale with out its consent, and is searching for an injunction to dam the deal within the Worldwide Courtroom of Arbitration.

Reporting by Makiko Yamazaki; Extra reporting by Chris Gallagher and Takahiko Wada; Modifying by Edwina Gibbs

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