• Home
• About/Contact
• Economic Reports
• Research
• Advertising

• Business
• Economics
• Reports
• Finance
• Marketing
• Politics
• Real Estate
• Services
• Retail
• Tech

Subscribe

Kuwati Investment Authority to triple its invesments in Japan

According to this morning’s Nikkei, the Kuwati Investment Authority has announced plans to triple the size of its investment in Japan, to $48 billion. The KIA has said that it intends to make investments in both real estate and equities. Such a move would bring between 20 to 25% of the fund’s global investment to Japan. The KIA is believed to be seeking value in firms that are expanding their operations in the Chinese market, and it has been speculated that the fund may be interested in taking up holdings in automotive firms.

Japan’s pension fund lost 5.65 trilion yen in fiscal 2007

As a quick follow-up to yesterday’s post on the creation of a sovereign wealth fund and the taking of seed money from Japan’s pension fund, it was announced today that the Government Pension Investment Fund lost 5.65 trillion yen in fiscal 2007. Although estimates had been published before, this is the first time we’ve seen detailed numbers from the government.

As one would expect, the fund made money from its investments in domestic government bonds, but lost about 7.5 trillion yen in equities positions both at home and overseas. This was the largest loss ever incurred by the pension fund, which has been investing full-scale in financial markets since 2001.

Nikkei average falls for tenth straight day, first time since…

The Nikkei just closed this afternoon at 13,286.37 - down 176.83 points. Today was the tenth consecutive trading day to finish at a loss. When was the last time the Nikkei declined for ten straight days? February 1965.

The shipping, automotive, machinery and insurance industries all felt the sting of decline. Now it’s time to see if the dollar can hold above that 105 position against the yen…

Steel Partners sells off stakes in Bull-Dog and Kikkoman; TCI is holding paper losses in J-Power

Earlier today, the Nikkei reported that Steel Partners has sold off all of its shares in the Bull-Dog Sauce Company, as well as Kikkoman. A year ago, Steel Partners held about 10% of Bull-Dog shares, and launched its takeover offer in May. After the Supreme Court declared that Bull-Dog’s anti-takeover defense measures were legal, Steel Partners brought in about 2 billion yen from the company when it bought back its stock warrants. It has been speculated that Bull-Dog has spent up to 70% of its sales revenue from the past year on boosting its cross shareholdings.

According to the paper, Steel Partners also made about 2 billion yen from its investment in Kikkoman. Although we don’t know the reasons exactly why Steel has decided to pull out of its Kikkoman position, it is certain that Kikkoman is gearing up to spend quite a bit of money on a new ketchup factory in China as well as 6 or 7 soy sauce factories in South America, China, North America, Oceania, Southeast Asia and Eastern Europe. The construction is expected to cost tens of billions of yen and bring Kikkoman’s production volume near the range of an annual 1 million kiloliters.

Back on April 1, the Nikkei published a piece entitled Firms Begin To Dismantle Takeover Defenses As Benefits Remain Unclear, which highlighted the fact that there have been no successful hostile takeovers in Japan, that courts tend to be friendly to management, that takeover measures hurt share value, and that poison pill measures can be quite costly to a firm.

Six days later, the Nikkei published a piece entitled More Firms Adopt Takeover Defenses That Seek Shareholders’ OK which stated that 443 firms had adopted anti-takeover measures by the end of FY2007.

Finally, it’s worth noting that just as Steel Partners exits now from its Bull-Dog chapter with a profit, that The Children’s Investment Fund is estimated to be holding 16 billion yen in paper losses deriving from its investment in J-Power. Today’s Yomiuri tells us, “If TCI refuses to obey the government order (to stop purchasing shares in J-Power), the fund or its executives may face a fine or prison term of up to three years.”

J-Power has no anti-takeover measures in place.

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

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.

Have Japanese equities hit bottom yet?

Today was the last day of financial 2007, and the Nikkei Index dove 294.13 points to finish at 12,525.54 - marking a 27.5% decline since April 1, 2007. To make matters worse, paper gains on shareholdings at Japan’s six major banking groups dropped by 62% over the same time period, according to the Nikkei. This was the first time that unrealized profits from equity holdings declined at the six major banks since 2003. On the other hand, the same six banks saw 100 billion yen in paper gains in bond holdings, the first time they’ve been in positive territory since 2002.

At the same time, the Nikkei also estimates that the market value of shares held by publicly traded firms in Japan declined 30% in fiscal 2007. This would represent a loss of 8.7 trillion yen of (paper) wealth. There seems to be heightened risk developing if the Nikkei should move lower, as many Japanese firms are boosting their cross-shareholdings in an effort to thwart would-be takeover attempts. Read more

Recent articles on the subprime crisis and the US in 2007 vs Japan in 1989

A few days ago, a piece entitled “Japan’s lost decade a lesson as American economy falters” by Steve Lohr appeared in the New York Times and its syndicated publications. In the article, Mr Lohr argues that there are “broad parallels” between the bursting of Japan’s bubble in the early 1990s and the current crisis in the US. As he puts it:

After a long boom, the Japanese economy in the 1990s, as in the US today, was jolted by a plunge in the real estate market.

In Tokyo, the government and bankers were slow to recognize the size of the problem. Bad loans piled up. The financial troubles rippled through the economy as consumer spending and job growth fell…

…A lengthy slowdown, [economists] say, could alter the economic psychology of the US, echoing the Japanese pattern, as the nation enters a period of diminished confidence that restrains spending and investment.

Mr Lohr goes on to point out that failings in Japan’s economic policy in the years following the bursting of the bubble caused even greater pain, a point that few would argue with. Japan’s fate is described as a warning to the United States, as 18 years after the bursting of the bubble, Japan’s main stock index (the Nikkei 225) is still only worth about 33% of what it was at its peak. Read more

Top METI official: Day traders are “fools”

A few days ago, we reported on remarks made by Ministry of Economy, Trade and Industry Vice Minister Takao Kitabata in late January. At that time, he characterized shareholders as “fickle and irresponsible” and faulted them for demanding high dividend payments (should shareholders just be satisfied with the annual box of fruit delivered to their doors?).

Now we have a report that on the next day, January 25, Kitabata told attendees of a meeting in Tokyo, “Day traders are typically the most corrupt shareholders. They are fools, capricious and irresponsible, so that voting rights need not be given to them.”

Before we even start to think about what this means for shareholder rights in Japan, and whether or not Kitabata’s comments are relevant or indicative of a broader line of thinking, let’s look at what Kitabata’s boss had to say.

Earlier today, METI Minister Akira Amari told reporters that he has advised Kitaba to “avoid making misleading remarks.” Kitabata then admitted that his comments were “inappropriate.” But here’s the kicker: According to the Nikkei, “[Kitabata] said the lecture was exclusively targeted at members of the institute and he did not expect that all of his remarks would be disclosed to outside parties.”

This is worrisome. Was Kitabata lying to the business leaders he spoke to on that day, or is this a sign of closed-door policy discussion? Either way, this incident shows a lack of transparency in policy making that Japan can ill-afford to be characterized by.

In January, overseas investors accounted for 69.2% of trading value at the nation’s top three exchanges, according to the Tokyo Stock Exchange. Trading by retail investors stood at just under 20% of the total, which was half of what it was two years ago. We’re not yet seeing individuals get back into the market, which we really should be at this point, given the discounted value of so many Japanese shares (though of course, there still may be some downside in prices to come in the following months).

We also saw hedge funds pulling 900 billion yen in assets out of Japan last year, which was the first time that figure had ever been negative.

Can it all be chalked up to subprime? Or are we seeing an erosion of confidence in Japan’s financial markets? If the latter is true (and both are to some degree), what effect will comments such as Kitabata’s have on international confidence in the nation’s equity markets?

And how will this damage the image of Prime Minister Yasuo Fukuda?

METI official: Shareholders “fickle and irresponsibile”

Earlier today, the ruling Liberal Democratic Party postponed plans to introduce a bill that would prevent foreign investors from owning more than one third of shares with voting rights in the nation’s airports. The Narita International Airport Corporation is one of many airports planning to go public in the coming years, and many amongst the LDP sought to protect what they felt was “fundamental national infrastructure.” (By the way, if you’re dying to get in on that Narita IPO, I have some really, really sweet wooden nickels you just have to check out).

Although the bill is not totally dead yet, the Nikkei quotes Financial Services Minister Yoshimi Watanabe, who is opposed to the idea, as saying that the proposed law it would be a “closed and isolated” measure against foreign investment.

I have to admit, that seems to be some progressive thinking. It would be hard to fault Japan for being protectionist over the sale of airports and seaports to overseas investors, and the nation would hardly be alone in taking such measures.

Later on Tuesday, however, a far more fascinating story was published in the Nikkei. According to the paper, Ministry of Economy, Trade and Industry Vice Minister Takao Kitabata, while speaking at a lecture on January 24, actually said the following out loud:

To be blunt, shareholders in general do not have the ability to run a company, and they are fickle and irresponsible.They only take on a limited responsibility, but they greedily demand high dividend payments. Steel Partners goes so far as to issue threats to corporate managers and other shareholders.

Kitabata thinks that firms should be able to pick and choose their shareholders, though he admits there may be some downside to this strategy. Kitabata talked about making it easier for firms to issue shares that carry no voting rights, or multiple voting rights. He suggested lower capital gains taxes for those who have held shares for over five years, and said that outside directors are “useless.”

As the Nikkei’s writer put it:

The best way to attract desirable shareholders is to run your company well. If Japanese firms come to think of nothing but introducing takeover defense steps, they will make laughingstocks of themselves to the rest of the world.

Sounds like good advice. Especially given this little tidbit from Wednesday morning’s upcoming Nikkei:

Sawai Pharmaceutical Co. on Tuesday said it has confirmed that the stake held by Fidelity Investments Japan Ltd. had reached 10.34%, or 1.62 million shares, as of Jan. 23. The drugmaker said it was unable to determine the rankings of its large shareholders.

If that doesn’t demonstrate the degree to which shareholders are “fickle and irresponsible,” I don’t know what does (Sarcasm alert).

False information disclosures on stock purchases make Japan’s Financial Services Agency look incompetent

When disclosures of Japanese shares need to be made, the information is submitted to Financial Services Agency’s Japan’s EDINET (Electronic Disclosure for Investors’ NETwork) website. I’m sure that anyone who has used the EDINET website will agree with me that it’s pretty much a piece of junk. From having pages locked in frames to a useless search function that was developed without considering usability, it’s a system designed by people who don’t use it - which is a problem. When such systems are launched to the public, it’s a sign that the management in charge is incompetent and that the system is bound to have problems in the future.

And EDINET now has a serious problem. On Friday, six fake reports of large share purchases were made. According to reports, the disclosure was made by Teramento, a company in Kawasaki. According to the filing made, the firm took a 51% stake in Toyota Motors, Nippon Telegraph & Telephone, Sony, Fuji Television Network, Mitsubishi Heavy Industries and Astellas Pharma.

That would be a huge market move indeed, valued somewhere in the neighborhood of 20 trillion yen ($187 billion). Teramento itself is capitalized at 1,000 yen.

On Sunday, the Financial Services Agency said that it had requested Teramento to correct the information. Teramento apparently refused, and the FSA issued an order for the correction to be done by Monday. Read more

Next Page »

Copyright © 2006-2008 Japan Economy News

Disclaimer