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Mitsubishi warns of Y150bn loss on assets

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An advertisement for Mitsubishi Corp. sits on display outside the company's headquarters in Tokyo, Japan, on Monday, Sept. 22, 2014. Mitsubishi, Japan's biggest trading house, proposed to buy Norwegian fishery Cermaq ASA for 8.88 billion kroner ($1.4 billion) to expand its foods business. Photographer: Tomohiro Ohsumi/Bloomberg©Bloomberg

Mitsubishi Corp has become the second Japanese trading house in two days to report massive asset impairments and a likely annual loss, echoing Mitsui & Co’s warning on the effect of plunging commodity prices.

On Thursday Mitsubishi, the largest of Japan’s trading houses, said it would write down the value of its assets by Y430bn ($3.8bn). This will wipe out its operating profits and leave a net loss of Y150bn for the year ending March 2016. However, the company it will maintain its dividend of Y50 a share.

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Losses on this scale illustrate both the aggressive investment by Japanese trading groups in recent years and how far commodity prices have fallen.

Ken Kobayashi, chief executive, said Mitsubishi had recognised losses on all of the assets that it is worried about.

“The price of oil and minerals has fallen simultaneously after we increased the scale of our resource investments,” said Mr Kobayashi. “The technological innovations allowing extraction of shale gas have been a very large factor.”

Mitsubishi’s 20.4 per cent stake in Anglo American Sur, the Chilean copper miner, caused it the greatest pain: a Y280bn impairment. It bought the stake for $4.51bn in 2011 and held it at a book value of Y470bn.

Other losses came from gas and iron ore in Australia, ferrochrome in South Africa, decommissioning costs for North Sea oil and a range of other businesses.

Mitsubishi’s rivals are suffering in similar ways after shifting their businesses away from trading and towards resources investment in recent years — buying up assets around the world in order to secure resources for the island nation.

Mitsui on Thursday forecast its first annual loss since 1947, taking writedowns on many of the same projects that have hurt Mitsubishi. In January, Marubeni also announced large write-offs on commodity investments.

Adopting international accounting standards has added to the volatility in trading companies’ results, as it has forced them to recognise impairment losses on their investments.

Mitsubishi’s share price fell 4 per cent on Thursday after its announcement, to Y1,920.

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