Foreign investors fear Japan is backsliding on reform

{"text":[[{"start":9.95,"text":"Foreign investors are pushing back at a slew of moves in Tokyo to restore power to the boards of Japanese companies, arguing that the government is in danger of backsliding on reform attempts."}],[{"start":21,"text":"In recent weeks, Japan’s government and regulators have set out initiatives that bankers, investors and advisers say amount to a message of caution to foreign activists and private equity."}],[{"start":33.1,"text":"“It may not be co-ordinated but . . . it makes it seem like the pendulum is swinging back towards economic nationalism,” said a senior executive at a foreign private equity firm in Tokyo."}],[{"start":44.900000000000006,"text":"Nicholas Benes, founder of the Board Director Training Institute of Japan, said: “If everything is accepted as proposed, I think the proposals or drafts will be perceived as a sign that a backlash has begun and that Japan is ‘backsliding’ too early in its necessarily long process of generating real governance change.” "}],[{"start":65,"text":"Potentially the most consequential move is a proposed clarification to takeover guidelines to emphasise that boards need not support the highest offer if they believe a lower bid would be in the company’s best interests."}],[{"start":78.9,"text":"Separately, draft “growth investment guidelines” suggest Japan may be placing too much emphasis on short-term capital efficiency and shareholder returns, while arguing that domestic asset managers could soften voting policies that penalise such decisions."}],[{"start":93.85000000000001,"text":"The government is also launching a working group on shareholder activism as it considers tougher thresholds for proposals and disclosure requirements, as well as potentially allowing boards to suspend voting rights in cases of violations."}],[{"start":108.4,"text":"At the same time, officials are examining the ties between activist investors and private equity firms, including whether insider information is being shared or prices are being suppressed during takeover talks. "}],[{"start":120.65,"text":"Adding to fears of increased intervention, the government recently blocked the buyout of Makino Milling, a machine tool maker, by Asian private equity firm MBK as it seeks to defend its interests in defence, supply chains and critical minerals."}],[{"start":135.25,"text":"Officials stress that the bulk of the moves are aimed at returning some power to boards rather than dissuading foreign capital."}],[{"start":141.95,"text":"Where the takeover rules are concerned “the basic attitude to welcoming investors has not changed, but the government wants to rebalance the rules concerning shareholder rights”, said Hiroyuki Sameshima, the official at the powerful economy, trade and industry ministry overseeing the updates to the guidance."}],[{"start":158.89999999999998,"text":"One senior banker in Tokyo argued that although the announcements were concerning, Japan remained open to investment: “It’s two steps forward, one step back, but I don’t think the direction is changing.”"}],[{"start":171.59999999999997,"text":"However, the sudden perceived shift in tone is jarring for foreign investors who have grown used to Japan welcoming them as positive influences. "}],[{"start":181.64999999999998,"text":"The Japanese government has for years been trying to boost corporate returns and the stock market, in a bid to increase equity investing by its declining, but cash-rich, population."}],[{"start":192.14999999999998,"text":"Takeover guidelines designed to promote industry consolidation, an exchange pushing for companies to listen to shareholders and a public embrace of private equity and activists have all contributed to Japan’s stock market surge, analysts say. The Nikkei 225 index has jumped by about a third this year."}],[{"start":null,"text":"

"}],[{"start":210.24999999999997,"text":"Activist and private equity deals have proliferated, turning Japan into the second-biggest global market for buyouts behind the US. Firms including Oasis Management, Dalton and US-based Elliott Management have made significant inroads into the country and are often instrumental in starting sales processes that are won by buyout groups."}],[{"start":230.34999999999997,"text":"The total number of public activist deals is expected to exceed 200 for the first time this year. Kazuya Nakagawa of Nomura Securities estimated that activists this year will invest in 27 companies with market values of at least ¥1tn ($6.2bn), and 12 companies worth more than ¥4tn."}],[{"start":253.24999999999997,"text":"Companies in Japan are also facing a record number of activist proposals this annual meeting season, while investors expect activity to only increase."}],[{"start":263.04999999999995,"text":"Elliott Management’s victory over Toyota Motor earlier this year — forcing it to pay more to take its largest subsidiary private — showed the firm it could successfully deploy more capital in Japan and use more public and forceful methods, say people familiar with its thinking. Elliott declined to comment."}],[{"start":278.34999999999997,"text":"A rising number of companies have been lobbying the government to bolster their ability to defend against unwanted attention and unsolicited takeovers, say multiple people familiar with the matter. Smaller companies that are being bounced into sales processes by activists are in particular pushing back."}],[{"start":294.4,"text":"“From the companies’ perspective, there are also situations that feel excessive and highly stressful. Those concerns are reaching politicians as well,” said one lawyer advising major Japanese companies."}],[{"start":305.59999999999997,"text":"In policy recommendations published in December, Keidanren said some members were concerned about the distribution of profits being “excessively skewed” towards shareholders and insufficient investment in employees and the business."}],[{"start":319.29999999999995,"text":"“Behind these challenges are activist investors seeking to secure short-term profits,” the trade body said, as well as passive investors. "}],[{"start":327.44999999999993,"text":"“These market participants do not necessarily function in a way that contributes to the improvement of medium- to long-term value through constructive dialogue with companies.”"}],[{"start":337.6499999999999,"text":"The hope of investors — and the quiet guidance from government officials — is that the reforms will be watered down by Sanae Takaichi’s government in the coming weeks."}],[{"start":348.3499999999999,"text":"Benes hopes that reform would still proceed smoothly: “Activism and shareholder voices are not going to go away tomorrow.”"}],[{"start":363.7499999999999,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1782784448_6336.mp3"}