Evaluation-Retail big Aeon holding out as Japan dismantles controversial listings By Reuters

By Makiko Yamazaki and Ritsuko Shimizu

TOKYO (Reuters) – As many Japanese corporations bow to strain from shareholders and regulators to finish the observe of itemizing subsidiaries – which critics say compromises company governance – one of many nation’s largest retailers is not shopping for it.

Aeon Co Ltd, whose 15 listed subsidiaries embrace supermarkets and drugstores, mentioned so-called parent-child listings enhance, slightly than hinder, governance.

“It is probably the most cost-effective strategy to strengthen administration of our subsidiaries,” Government Officer Tsukasa Ojima advised Reuters in a current interview.

Listed corporations should have larger disclosure requirements and administration is at all times beneath shareholder scrutiny, leading to higher high quality administration, mentioned Ojima, a former Nomura Securities banker who joined Aeon final 12 months.

The feedback set Aeon other than many different corporations at a time when the federal government and Tokyo Inventory Change (TSE) discourage such listings and are setting stricter governance necessities.

Itemizing a subsidiary was as soon as a preferred means in Japan for a listed mother or father to lift funds and preserve affect. However governance consultants have lengthy branded the observe as basically unfair to minority shareholders, whose pursuits are inevitably subordinated to these of the mother or father.

Some traders say the potential for conflicts of curiosity dulls listed subsidiaries’ valuations, whereas others like hedge funds goal such corporations in anticipation of buyouts or gross sales.

With rising criticism, notably from overseas the place such listings are uncommon, authorities have regularly cracked down on the observe. The screws tightened in April when the TSE reorganised its markets into three new tiers and started requiring listed subsidiaries to safe larger board independence or arrange an impartial particular committee to stay within the prime tier.

RE-THINK

With the elevated regulatory scrutiny, the variety of listed subsidiaries has roughly halved to 219 this 12 months from a peak of 417 in 2007, confirmed information from Nomura Institute of Capital Markets Analysis.

In a single instance, Hitachi (OTC:) Ltd divested or absorbed almost all of its 22 listed subsidiaries during the last decade. Huge names who proceed to have listed subsidiaries embrace SoftBank Group Corp and Fujitsu Ltd.

Extra corporations are more likely to unwind parent-child listings as governance reform has compelled a re-think of enterprise portfolios and capital effectivity, mentioned Hiroshi Yagi, who advises on capital technique at Mizuho Belief & Banking.

“Many corporations have stored their subsidiaries listed for functions unrelated to their enterprise portfolios, akin to letting their models have the status of listed standing or to lure prime expertise,” mentioned Yagi.

The revelation final month that Hino Motors Ltd had falsified emissions information for nearly 20 years highlighted what analysts referred to as Toyota Motor (NYSE:) Corp’s indecisive technique over its listed truck and bus subsidiary, the place they mentioned Hino’s half-hearted independence allowed ineffective governance.

The automotive maker acquired 50.1% of Hino in 2001 since when almost all presidents have been from Toyota.

Toyota’s chief communications officer, Jun Nagata, advised reporters the automaker had created little synergy with Hino and some years in the past mentioned methods to boost ties, together with the opportunity of taking full possession.

BUYOUT RISK

Aeon’s Ojima mentioned the retailer has safeguards to forestall potential points related to parent-child listings.

Every of its listed subsidiaries – together with Aeon Mall Co Ltd, Maxvalu Tokai Co Ltd and Welcia Holdings Co Ltd – is run independently by consultants in its discipline to realize its personal revenue development, whereas having the ability to faucet assets on the mother or father akin to buyer information and model energy, Ojima mentioned.

“If mother and father can make sure that the rights of listed subsidiaries’ minority shareholders will not be sacrificed and may clarify clear advantages, such listings in all probability do not need to be banned,” mentioned Waseda Enterprise College professor Kazunori Suzuki.

No research have to date proven that listed subsidiaries lag different corporations in monetary efficiency, Suzuki mentioned.

“However we have seen so many shady instances previously, the place mother and father listed their subsidiaries out of want for money and later re-absorbed them at costs decrease than their preliminary choices.”

A bunch of institutional traders in a report final 12 months mentioned minority shareholders of listed subsidiaries are probably the most weak in emergency conditions akin to buyouts.

“The mother or father can purchase out the listed unit at a reduction by benefiting from its controlling shareholder standing,” the group mentioned. “Considerations about such dangers can’t be dispelled irrespective of how loudly the mother or father says it respects the subsidiary’s independence.”