Tokyo bourse overhaul spurs prime market push for Japanese firms
20/07/2021 01:17
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change to text)
By Makiko Yamazaki and Yuki Nitta
TOKYO, July 20 (Reuters) - Tighter requirements to stay on
the Tokyo bourse's prestigious main board are forcing Japanese
companies to cease long criticised practices such as
cash-hoarding and cross shareholdings, even as some investors
call for tougher reform.
In the biggest overhaul of Japan's stock markets in a
decade, Tokyo Stock Exchange will introduce next year tighter
listing criteria for the top category, which 30% of almost 2,200
companies listed on its main section currently do not meet.
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The reform is meant to create a higher profile for firms
with global corporate governance and profitability standards as
well as disclosures in English for the main board to attract
foreign investment, a policy drive that began under the former
Prime Minister Shinzo Abe.
Stricter rules for liquidity - market capitalisation in
tradable shares of at least 10 billion yen ($90 million) with a
tradable share ratio of 35% or more - are especially tough for
small caps firms or those largely owned by parent companies or
business partners.
Many small cap firms "previously had little urgency to
increase share prices, but the new rules are having a huge
impact on their mindset," said Atsuko Furuta, director at
investor relations consulting firm IR Japan.
Road construction machinery maker Sakai Heavy Industries Ltd
6358.T last month vowed to stay on the main board, launching
share buybacks and setting its dividend payout ratio target at
50%. Shares have surged by over 20% since the announcements.
"All we can do to meet the market cap requirement is to
raise share prices," executive officer Takao Yoshikawa told
Reuters. "We now plan to return capital in excess to
shareholders instead of hoarding it to boost return on equity, a
gauge that investors care about."
Similarly, chemicals trading firm Soda Nikka Co 8158.T
announced its largest-ever share buybacks and pledged to raise
its payout ratio target to 40% from 30%.
For many, being listed on the TSE's first section, to be
renamed "prime market" in April, is a status symbol.
"The first section status means our creditworthiness to
clients, lenders and new hires," Hideo Tanaka, CEO of realtor
A.D. Works Group Co 2982.T told a media briefing. "We must do
whatever it takes to be on the prime market."
The tradable share ratio rule also affects some larger
firms, prompting them to unwind cross-shareholding, where firms
hold stakes in each other to cement business ties.
The longstanding practice has been criticised as creating a
cozy relationship between management and large shareholders,
though the percentage of such shareholdings have halved to less
than 15% in two decades, according data from Nomura Institute of
Capital Markets Research.
Automotive components maker Toyota Boshoku Corp 3116.T
asked Toyota Motor Corp 7203.T to release part of its stake to
meet the 35% target, while foods wholesaler Mitsubishi Shokuhin
Co 7451.T launched a tender offer to buy back some of its
shares owned by trading firm Mitsubishi Corp 8058.T .
"WASTED OPPORTUNITY"
TSE says the overhaul is designed to bring clear concepts
for each market segment, designating the prime market to
companies that can have "constructive dialogue with global
investors."
"It's been said that for some companies, listing on the
first section has been their final goal and they make no efforts
to improve once that's achieved," Hiromi Yamaji, the head of the
bourse, told Reuters this month.
But some investors said the new criteria are still too lax
to make much impact, noting the reform's initial ambition was to
narrow down to some top 500 firms for TSE's Topix index .TOPX ,
which currently includes all the companies listed on the main
board.
"The S&P 500 index .SPX for example is far more selective,
while the prime market will likely allow firms with governance
concerns," said Taku Ito, chief portfolio manager at Nissay
Asset Management. "This is an opportunity wasted."
Companies that fail to meet the new rules can still apply to
remain on the prime market for an unspecified transition period
by submitting improvement plans by December, another point that
some investors say waters down reforms.
If those not meeting the criteria remain listed on the prime
market indefinitely, "the reform will be meaningless," said
Atsushi Kamio, senior researcher at the Daiwa Institute of
Research.
($1 = 110.5200 yen)
(Reporting by Makiko Yamazaki and Yuki Nitta; Additional
reporting by Hideyuki Sano and Mayu Sakoda; Editing by Lincoln
Feast.)
((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))