Evergrande woes hit Japan's toilet, air-conditioner and paint manufacturers

TOTO

21/09/2021 08:35

By Hideyuki Sano
    TOKYO, Sept 21 (Reuters) - Concern that China Evergrande
 3333.HK  may default https://www.reuters.com/world/china/china-evergrande-fears-consume-investors-awaiting-trading-2021-09-21
 on its mountain of debt hit shares of toilet maker Toto
 5332.T  and other Japanese firms that are seen vulnerable to a
further slowdown in China's property development.
    Toto lost 6.1 % on Tuesday, extending its fall since
Thursday to 14.8%, on the perceived risk of exposure to
Evergrande, which investors fear could miss debt payment later
this week.
    "There are rising and widely reported concerns about fund
flows at leading local developer China Evergrande Group, whose
business scale suggests to us it is very likely one of TOTO's
major customers," said Arisa Katsuyama, analyst at Morgan
Stanley.
    "Year-to-date debt defaults by real estate companies in
China, not just China Evergrande, already exceed the cumulative
figure for the past 10 years as tighter regulations bite," she
said, adding investors should bear in mind the risk Toto may
have to book loan loss reserves.
    China accounted for about 30% of Toto's profit last year but
the firm's spokesperson said it could not comment on specific
transactions including whether it has deals with Evergrande.
    Other potential suppliers to Chinese house builders and
constructors were also caught in the melee, with air-conditioner
manufacturer Daikin  6367.T  losing 4.7%.
    Almost a quarter of Daikin's air-conditioner sales came from
China in the last financial year, compared with 13-16% in
previous years. 
    Paint maker Nippon Paint Holding  4612.T , for which China
is by far the largest market, slid 7.5%.  
    Manufacturers of construction machines, which have long
benefited from the construction boom in China, also suffered,
with Komatsu  6301.T  losing 5.4% and Hitachi Construction
Machinery  6305.T  shedding 5.5%.
    Investors also dumped SoftBank Group  9984.T , a big
investor in Alibaba  BABA.N  and other Chinese tech firms, on
fears Beijing will continue to tighten its grip on them.
    SoftBank Group shares lost 5.0% as U.S.-listed Alibaba
shares hit a two-year low on Monday.  
    Tomoichiro Kubota, senior strategist at Matsui Securities,
said the damage could spread to more companies if China's
slowdown becomes more evident.
    "It looks like Chinese authorities are clamping down on
outright lavishness, which seems to have support from the
Chinese public. That has some resemblance to Japan's post-bubble
era, when expensive house prices were considered bad for
ordinary people." 
    While many Japanese firms rely on Chinese demand, Japanese
institutional investors have relatively limited exposure to
Chinese assets.
    Japan's biggest investor, Government Pension Investment Fund
(GPIF), had exposure of 9.673 billion yen ($88.31 million) to
Evergrande as of March, 5.9 billion yen in bonds and 3.7 billion
yen in stocks, out of its 186.1 trillion yen ($1.70 trillion)
assets.
    ($1 = 109.53 yen)

 (Reporting by Hideyuki Sano and Shinji Kitamura
Editing by Robert Birsel)
 ((hideyuki.sano@thomsonreuters.com; +81 3 4520 1195;))