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Sale of cross-shareholdings to be 2.3 trillion yen, largest in Tokyo Stock Exchange restructuring, fiscal year ended March 2022

THE NIKKEI via scoutAsia

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October 17, 2022 5 min read
Sale of cross-shareholdings to be 2.3 trillion yen, largest in Tokyo Stock Exchange restructuring, fiscal year ended March 2022

The "unwinding of cross-shareholdings" of listed companies is underway. Sales of cross-shareholdings for the fiscal year ended March 2022 totaled 2.3 trillion yen, about 600 billion yen more than in the previous period and the largest in the last four years since disclosure began. This was boosted by changes in the criteria for shares to be traded following the reorganization of the Tokyo Stock Exchange market. Although it has taken a step toward improving capital efficiency, there are still issues to be addressed in management reform from the shareholders' perspective, as there is a current trend to increase holdings.

Nikkei compiled financial statements of listed companies (excluding financial companies) for the fiscal year ended March 31. The largest sale was Nissan Motor's 170 billion yen. Of this amount, approximately 150 billion yen was in listed shares, and all shares of Daimler in Germany were sold to INSTITUTIONAL INVESTORS. The funds received from the sale are attributed to "To be used for investments in electrification, such as electric vehicles (EV)" and others.

The largest number of stocks sold was Toppan Printing, which reduced its holdings of 53 listed stocks (approximately 110 billion yen). According to financial statements, it unloaded shares in Recruit Holdings, Cookpad, and Seven Bank. Mitsubishi Heavy Industries sold 27 listed stocks for nearly 100 billion yen. It reduced its holdings, mainly in Mitsubishi Group.

The amount sold in the previous period was equivalent to 7% of the total amount of cross-shareholdings (slightly over 34 trillion yen on a market value basis) at the end of March 2021. As a result of the sell-off, the number of stocks held for purposes other than pure investment averaged 33.8 per company, down 1.5 stocks from a year ago. According to the Nomura Institute of Capital Markets Research, cross-shareholdings held by listed companies accounted for 8.7% of market capitalization in fiscal year 2020, down significantly from over 30% in fiscal year 1990.

Cross-shareholdings that lead to the creation of "silent" stable shareholders are persistently criticized by investors in terms of management self-protection and effective use of assets. Since the introduction of the corporate governance guidelines in 2015, which required policy explanations to cross-shareholdings, investor scrutiny has increased every year. At the 2022 shareholders meeting, Kyokuto Boeki, Miyachi Engineering Group, and others presented shareholder proposals to reduce cross-shareholdings, with Kyokuto Boeki receiving nearly 30% of the votes in favor.

The restructuring of the Tokyo Stock Exchange market also spurred the market. Cross-shareholdings are excluded from the "shares in circulation" criteria for listing by top-tier primes and others, and are not included in "floating shares," which is directly related to the inclusion ratio in the Tokyo Stock Exchange Stock Price Index (TOPIX). Soda Nikka is moving forward with unwinding of cross-shareholdings to achieve the criteria, including a 35% shares in circulation ratio.

However, the reduction of cross-shareholdings is not a straight line. There were approximately 980 companies that disclosed an increase in their holdings of at least one listed stock, with the total amount of acquisitions totaling 728 billion yen. Toyota Motor and Isuzu Motors mutually acquired and held shares in each other through a capital and business alliance.

About 640 firms cited acquisitions through business partner shareholding associations as the reason for the increase. Kajima increased its cross-shareholdings by 10 issues (worth about 3.5 billion yen), 9 of which are "We have determined that further strengthening our business relationship with the issuer will contribute to enhancing our corporate value" for this reason.

Reducing cross-shareholdings also encourages asset replacement and increases management efficiency. The market was of the opinion that "The focus will be on building a trusting relationship with a sense of urgency, including monitoring to ensure that the corporate value of the company's holdings increases"(Kengo Nishiyama principal investigator at Nomura Institute of Capital Markets Research).

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The English translations provided through this service are the result of automatic and mechanical translation of contents written in Japanese and created by Nikkei or licensed by a third party, by an automatic translation system provided by a third party after certain processing of the contents by Nikkei. Nikkei disclaims all warranties, express or implied, related to the English translations, including any warranty of accuracy, reliability, validity and fitness for a particular purpose. Users shall use this service with the full understanding that it employs an automatic translation system that automatically and mechanically recognizes and analyzes information and outputs the results.