Cash-hoarding Japanese firms please investors as share buybacks hit record
* Japan Inc announced 6.5 trln yen of buybacks so far in FY
* Japan firms' internal reserves at record 446.5 trln yen
* Goldman expects buybacks of 7.8 trln yen in next fiscal
By Ayai Tomisawa and Alun John
TOKYO/HONG KONG, Feb 18 (Reuters) - Japanese share buybacks
have hit a record this fiscal year and are set to maintain the
booming growth as cash-rich companies bow to pressure from
investors and the government to boost returns and improve
In recent weeks, SoftBank Group Corp, Sony
, Itochu Corp and other companies have
announced plans to buy back shares worth more than 1.3 trillion
yen, bringing the total value of buybacks flagged since April 1
to over 6.5 trillion yen ($58.92 billion).
That is already the most for any fiscal year since 2003 when
new and stricter buyback rules were unveiled, according to
financial data service firm I-N Information Systems.
Investors have long criticised Japanese companies for
hoarding cash rather than investing it or returning it to
shareholders, pushing down their returns on equity (ROE), a
measure of the amount of profit a company generates from the
money invested in it.
Buying back shares reduces a company's equity base, boosting
"This past month has seen a lot of very positive
shareholder-friendly activity from a wide array of Japanese
companies," said Seth Fischer, founder and chief investment
officer of Oasis Management, citing actions by SoftBank, Sony,
Haseko, Tokyo Tatemono and Toppan Printing
"To attract foreign investors, companies should continue
this path of increasing shareholder returns, while continuing to
improve their corporate governance."
Activist investor Oasis, among others, has been vocal in
urging Japanese companies to boost returns. In December, Oasis
failed to block the sale of Alpine Electronics to its larger
affiliate Alps Electric, but Alps did announce a 45 billion yen
buyback in January, the third largest buyback that month.
Japan Inc is under pressure to appease foreign investors
after they sold 13 trillion yen of Japanese stocks in 2018, more
than four times the net sales in 2015 and 2016, and a sharp
reversal of the net 1.9 trillion yen bought in 2017.
"Recently, the global economy is weak and the Japanese
market has fallen as foreign fast money has been selling
aggressively,” said Archibald Ciganer, co-head of Japanese
equity at money manager T.Rowe Price.
“But those Japanese companies that have good governance are
taking advantage of cheaper stock prices and putting a floor
under their stock price through buybacks.”
Share buybacks have had political pushback elsewhere. In the
United States, Senator Marco Rubio last week announced plans to
tax buybacks in an effort to encourage companies to reinvest
spare cash instead of returning it to shareholders.
In Japan, though, policy makers have been urging companies
to pay more attention to the wishes of investors, most notably
through the country's corporate governance and stakeholders
codes. Guidelines released last year urged firms to focus on
their financial management policies, including the amount of
cash they had on hand.
According to Ministry of Finance data, Japanese companies
had internal reserves worth a record 446.5 trillion yen at the
end of their latest fiscal year.
Japanese companies' ROEs are expected to fall below 10
percent this fiscal year for their first decline in three years,
according to Nomura Securities.
"Many Japanese companies simply have too much cash on their
balance sheets weighing down their ROEs. Better capital
structure management is definitely needed," said Kin Chan, chief
investment officer of Argyle Street Management.
A revision to Japan's corporate governance code last year,
designed to push companies to sell stakes in other companies, is
also driving buybacks.
"Dissolving cross shareholdings, and increasing dividends
and buybacks are two ways to make Japanese companies more
attractive to foreign investors," said Patrick Moonen, principal
multi asset strategist at Netherlands-based NN Investment
Further buybacks are expected. Analysts at Goldman Sachs
predict that buybacks will reach 7.8 trillion yen for the 12
months to the end of March 2020.
Currently, 56 percent of Japanese non-financial companies in
the benchmark Topix index sit on net cash - meaning they
have funds left over even if they paid all debts tomorrow. That
compares with less than 20 percent in the United States or
Europe, according to figures from brokerage CLSA.
“I tell investors that the presents are still under the
Christmas tree," said Nicholas Smith, CLSA's Japan strategist.
($1 = 110.3200 yen)
(Reporting by Ayai Tomisawa in Tokyo and Alun John in Hong
Kong; Editing by Muralikumar Anantharaman)
© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.