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

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© Reuters. FILE PHOTO: Aeon Co Ltd’s emblem is seen on its shopping center in Chiba, Japan, Nov. 3, 2016. REUTERS/Kim Kyung-Hoon/File Photograph

By Makiko Yamazaki and Ritsuko Shimizu

TOKYO (Reuters) – As many Japanese corporations bow to stress from shareholders and regulators to finish the follow 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, somewhat than hinder, governance.

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

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

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

Itemizing a subsidiary was as soon as a well-liked approach in Japan for a listed mother or father to lift funds and keep affect. However governance specialists have lengthy branded the follow as essentially 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, significantly from overseas the place such listings are uncommon, authorities have regularly cracked down on the follow. 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 yr from a peak of 417 in 2007, confirmed knowledge from Nomura Institute of Capital Markets Analysis.

In a single instance, Hitachi (OTC:) Ltd divested or absorbed almost all of its 22 listed subsidiaries over the past decade. Massive 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, corresponding 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 knowledge for nearly twenty 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 automobile 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 reinforce ties, together with the potential of taking full possession.

BUYOUT RISK

Aeon’s Ojima mentioned the retailer has safeguards to stop 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 specialists in its discipline to attain its personal revenue progress, whereas with the ability to faucet sources on the mother or father corresponding to buyer knowledge and model energy, Ojima mentioned.

“If mother and father can ensure that the rights of listed subsidiaries’ minority shareholders will not be sacrificed and may clarify clear advantages, such listings most likely do not need to be banned,” mentioned Waseda Enterprise Faculty professor Kazunori Suzuki.

No research have thus far 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 gaggle of institutional traders in a report final yr mentioned minority shareholders of listed subsidiaries are essentially the most susceptible in emergency conditions corresponding to buyouts.

“The mother or father should buy 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.”

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