Tokyo bourse overhaul spurs prime market push

Biggest reform: A file picture showing a man walking past a stock indicator displaying numbers of the Nikkei 225. The TSE will introduce tighter listing criteria next year. — AFP

TOKYO: 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 (TSE) 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.

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 (US$90mil or RM386.1mil) 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 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 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, chief executive officer of realtor A.D. Works Group Co 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. — Reuters

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