Band Makiko Yamazaki and Yuki Nitta
TOKYO, July 20 (Reuters) – Stricter requirements to stay on the prestigious Tokyo Stock Exchange board are forcing Japanese companies to stop long-criticized practices such as hoarding and cross-shareholdings, even as some investors are calling for more stringent reform.
As part of the biggest overhaul of Japanese stock markets in a decade, the Tokyo Stock Exchange will introduce stricter listing criteria for the top category next year, as 30% of the nearly 2,200 companies listed in its main section do not currently fulfill.
The reform aims to create a higher profile for companies with global standards of corporate governance and profitability as well as disclosures in English for the board of directors to attract foreign investment, a policy which began under former Prime Minister Shinzo Abe.
Stricter liquidity rules – a market capitalization in tradable shares of at least 10 billion yen ($ 90 million) with a tradable equity ratio of 35% or more – are especially difficult for small companies. capitalization or those largely owned by parent companies or business partners.
Many small-cap companies “previously had little urgency to raise stock prices, but the new rules are having a huge impact on their mindset,” said Atsuko Furuta, director of the relationship consulting firm. IR Japan investors.
Road construction machinery manufacturer Sakai Heavy Industries Ltd 6358.T Last month, he pledged to stay on the board, initiating share buybacks and setting his target dividend payout ratio at 50%. Stocks jumped more than 20% from the ads.
“All we can do to meet the market capitalization requirement is to increase the price of shares,” chief executive Takao Yoshikawa told Reuters. “We now plan to return excess capital to shareholders instead of hoarding it to increase return on equity, an indicator that investors care about.”
Likewise, the chemicals trading company Soda Nikka Co 8158.T announced its largest share buybacks and pledged to raise its payout ratio target from 30% to 40%.
For many, being listed on the first section of the Toronto Stock Exchange, which will be renamed “Main Market” in April, is a status symbol.
“The status of the first section signifies our creditworthiness vis-à-vis clients, lenders and new hires,” Hideo Tanaka, CEO of real estate agent AD Works Group Co. 2982.T said during a press briefing. “We have to do whatever it takes to be in the main market.”
The marketable share ratio rule also affects some large companies, prompting them to unwind cross-holdings, where companies hold holdings in each other to cement their business ties.
The long-standing practice has been criticized as creating a warm relationship between management and large shareholders, though the percentage of those holdings has halved to less than 15% in two decades, according to data from the Research Institute. in Nomura Capital Markets.
Automotive Component Manufacturer Toyota Boshoku Corp 3116.T asked Toyota Motor Corp 7203.T release part of his participation to reach the 35% target, while food wholesaler Mitsubishi Shokuhin Co 7451.T launched a public takeover bid some of his shares held by the trading company Mitsubishi Corp 8058.T.
TSE says the overhaul is designed to bring clear concepts for each market segment, designating the primary market for companies that can have “a constructive dialogue with global investors.”
“It has been said that for some companies, listing on the first section is their end goal and that they make no effort to improve once that goal is reached,” Hiromi Yamaji, chief executive officer, told Reuters. the stock market.
But some investors said the new criteria were still too lax to have much impact, noting that the reform’s initial ambition was to be limited to the top 500 companies in TSE’s Topix index, which currently includes all companies listed on the main board.
“The S&P 500 Index .SPX eg is much more selective, while the main market will likely allow companies with governance issues, ”said Taku Ito, chief portfolio manager at Nissay Asset Management. “It’s a missed opportunity.
Companies that do not comply with the new rules can still apply to remain in the main market for an indefinite transition period by submitting improvement plans by December, another point which some investors say weakens reforms.
If those who do not meet the criteria remain on the list on the first market indefinitely, “reform will be meaningless,” said Atsushi Kamio, senior researcher at the Daiwa Research Institute.
($ 1 = 110.5,200 yen)
(Reporting by Makiko Yamazaki and Yuki Nitta; Additional reporting by Hideyuki Sano and Mayu Sakoda; Editing by Lincoln Feast.)
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