Mizuho sees ‘urgency’ as Japan Inc rushes to improve its use of capital in line with the TSE. By Reuters

© Reuters. Mizuho Trust Bank CEO Kei Umeda speaks in an interview with Reuters in Tokyo, Japan, on November 27, 2023. REUTERS/Ritsuko Shimizu

(This December 4 article has been rewritten to change the ‘scramble’ tense in the first sentence and edit the title from ‘Capital Enhancement’ to ‘Improving Capital Use’ in accordance with paragraph 1.)

By Makiko Yamazaki and Ritsuko Shimizu

TOKYO (Reuters) – A rare call from the Tokyo Stock Exchange to improve capital efficiency has prompted Japanese companies to rush to draw up action plans to avoid being seen as latecomers, the head of Mizuho Financial Group’s trust finance division told Reuters.

“There is a growing sense of urgency among companies,” Kei Umeda said, ahead of January when the Tokyo Stock Exchange (TSE) begins publishing a list of companies that have disclosed action plans in response to calls to improve capital utilization. The CEO of Mizuho Trust & Banking said in an interview:

The TSE’s reform push has been welcomed by investors as a relief to Japan’s chronically undervalued share count, but as of July only 20% of companies listed in the top “prime” section had disclosed concrete measures.

Mizuho Trust’s corporate finance consulting services have seen a surge in demand, with the company holding 60 to 100 client meetings a month to discuss ways to increase its price-to-book ratio, Umeda said.

His comments show that the stock exchange’s plan to take compliant companies public has created a “naming and shaming” effect on laggards, with about half of listed companies trading below book value.

Although TSE’s request is not legally binding, many companies are “very interested in what other companies in the same industry or in the same region are doing,” Umeda added. He added that he didn’t want to be seen as falling behind.

The TSE request has already triggered a slew of share buybacks, cross-equity liquidations and some management buyouts (MBOs) that take companies private to avoid pressure from shareholders.

Japan has made 16 MBO announcements this year, with a total value of 1.19 trillion yen ($8.11 billion), including Taisho Pharmaceutical Holdings’ $4.8 billion deal, according to Recof Data.

“The costs associated with listing are coming under more scrutiny as the benefits of having a listed status in terms of financing are waning,” Umeda said. “More and more companies are choosing to go private, prioritizing speed of decision-making,” he said.

($1 = 146.8100 yen)