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Nikkei highly critical of Japanese government’s decision to block The Children’s Investment Fund

April 17, 2008
By Ken Worsley


Now that Japan’s government has effectively blocked TCI from upping its stake in J-Power from 9.9% to 20%, a slew of negative reactions to such action is bound to be published, and some pressure is expected to be put on Japan’s government to allow the nation’s current stunted form of capitalism to develop on its own.

The Nikkei got the ball rolling today, in an opinion piece titled Govt ‘Selection’ Of Shareholders Costs Japan Dearly. Some selections:

[M]arket insiders are wary of an acceleration in Japan selling by overseas investors. “TCI had offered an alternative plan restricting its voting rights even if it was allowed to increase its stake,” said Kengo Nishiyama, a strategist with Nomura Securities Co. “The government failed to give a convincing explanation of why the plan was not acceptable.”

…Each time a foreign activist fund’s attempt to take over a Japanese company has been blocked — a typical case is the aborted bid by Steel Partners to take over Bull-Dog Sauce Co. — or calls to control foreign investment in sensitive sectors have emerged, foreign investors have rushed to sell Japanese equities, regarding Japan as remaining closed to them…

…It is unusual for the government to get involved so directly in private-sector investment activities.

(I’m not so sure about that last statement; this just seems like a particularly egregious example.)

“Japan must now face the question of whether management of a company or the government has the right to choose shareholders,” said Yoshihiro Ito, director of Okasan Capital Management Co. The effective selection of stockholders through cross-shareholdings — a practice that is reviving in Japan — listings of both parents and subsidiaries, and government intervention will distort the stock market and cost companies dearly.

Bull-Dog Sauce is a case in point. The company has spent a total of more than 12 billion yen, or about 70% of its sales, to purchase cross-shareholdings and other securities in the past five years since Shoko Ikeda became president.

The government needs to be extremely cautious and have a clear justification to intervene in private-sector investments. Otherwise, it could seriously damage the national interest.

The word “could” seems a bit light in this sentence; The LDP has been damaging national interest for decades. One question they will be faced with in the future is whether the population will believe that their actions are in the voting public’s best interest or if they are more akin to amakudari back-scratching. Although this may not seem like a bread-and-butter issue at first glance, it certainly looks as if the public is going to have more of a “choice” on these matters in the coming years, if you’ll pardon the pun.

Filed Under Equity Markets, Finance, Politics, Private Equity 

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Comments

5 Responses to “Nikkei highly critical of Japanese government’s decision to block The Children’s Investment Fund”

  1. Contrarian on April 18th, 2008 6:02 am

    It’s hard to see how this won’t raise the cost of capital for Japanese companies–first, in the equity weighting, then rippling through the debt weighting in the long run.

  2. Smith on April 19th, 2008 9:26 am

    Japan is hardly the only nation to have such policies, I don’t why it’s singled out. Look at the US, they’ve done such things plenty of times.

  3. Ken Worsley on April 19th, 2008 8:19 pm

    Smith, I think part of the issue is that the government has stated an increase of FDI as one thing it wants. These sort of events make the government seem inconsistent on policy. This leads to confusion and could hurt firms if foreign investors start yanking (even more) cash out of their equity holdings.

    I’m not sure if Japan is being singled out here. The website is pretty much about Japan.

  4. WG on April 19th, 2008 11:03 pm

    [M]arket insiders are wary of an acceleration in Japan selling by overseas investors.

    Ken, does this worry you?

  5. Ken Worsley on April 20th, 2008 12:55 am

    WG, not really…it’s hard to complain about cheaper prices. They will cycle back in eventually. Maybe Koizumi will make a comeback (ha)…the WSJ even wrote about Sentaku the other day.

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