TOKYO – A record wave of share buybacks by companies such as Sony Corp., SoftBank Group Corp. and Nomura Holdings Inc. has cheered investors who say Japan’s bosses are finally warming up to stockholder interests.
Japanese companies announced an unprecedented 6.059 trillion yen ($55.6 billion) of share repurchases in 2018, I-N Information Systems Ltd said.
That was 4 percent higher than the previous record set two years earlier, according to I-N’s data, which goes back to 2004. In the first half of 2019, announced buybacks have totaled 5.825 trillion yen, more than double the tally from the first six months of last year, I-N research shows.
The situation is very different from the US, where share repurchases are so common that they are politically controversial and widely seen as a key support for the stock market.
In contrast, investors and analysts have for years chided Japanese companies for being stingy with shareholder payouts and for hoarding more cash and securities than they need. Now, executives are being pressed into action by Japan’s corporate-governance code, introduced in 2015, and by activists and traditional investors who have become more demanding.
“Both pressures are coming together and Japanese management is gradually starting to understand what they have to do,” said Soichiro Matsumoto, chief investment officer at Credit Suisse Japan.
The result has been to prod companies to unwind so-called cross-shareholdings in other listed groups, trim cash hoards, lift dividend payments, set clear return-on-equity targets and buy back shares.
Foreign investors have typically shied away from Japan because of a lack of financial discipline, said Jonas Edholm, a global equity portfolio manager at Norway’s Skagen Funds. He said foreigners see buybacks as an “initial but important step toward closing the gap in capital allocation.”
Among the biggest actors is SoftBank, the technology and telecommunications giant, which has offered to undertake 600 billion yen ($5.5 billion) in buybacks. In May, entertainment and electronics group Sony said it would buy back 200 billion yen worth of its shares. Nomura, the country’s biggest securities firm, is also repurchasing up to 150 billion yen.
Nearly a quarter of Edholm’s Skagen Focus fund is invested in Japanese shares, with 1.6 percent of it invested in SoftBank.
Edholm said the move by SoftBank signaled to other smaller firms that buybacks are feasible. SoftBank is one of Japan’s largest and most well-known companies.
Some companies are buying back for the first time. These include Shimizu Corp., a construction company which is selling off some shares in other companies that it has held for years to win business. It will use the proceeds from disposing of those stakes to repurchase shares.
Shimizu’s history dates back more than 200 years and it is known for building and renovating many landmark shrines and temples, including the five-story pagoda of the Sensoji temple in Asakusa, one of Tokyo’s most photographed landmarks.
“We expect this trend to continue for a while in absolute terms in Japan,” said Kathy Matsui, chief Japan strategist for Goldman Sachs. She said buybacks in Japan were still quite low relative to earnings or market capitalization, when compared with other developed markets.
Last year, companies in Japan’s Topix index spent an equivalent of 0.8 percent of the index’s end-2017 market value buying back stock, Goldman research shows.
In contrast, S&P Dow Jones Indices data shows companies in the S&P 500 spent $806 billion last year on buybacks. On the same basis, that works out to 3.5 percent of the index’s market value at the end of 2017.
Still, pockets of resistance remain. For example, Kyushu Railway Co.’s management opposed a demand from New York hedge-fund manager Fir Tree Partners that it buy back 10 percent of its shares. The company said it needed cash to invest in growth and to be ready for natural disasters. A majority of shareholders agreed, rejecting the proposal.
Fir Tree partner Aaron Stern said he believes the company could repurchase some shares. He added that Fir Tree’s equity holdings in Japan are at a historical high, at well over 20 percent of its total equity investment. He said the firm expects the ratio to rise more because it is encouraged by the Japanese market becoming more friendly to shareholders.
Some investors remain skeptical. Hiroshi Matsumoto, who sets asset allocations for Japanese clients at Pictet Asset Management, said returning money to shareholders was better than hoarding cash, but it could also indicate management timidity or a dearth of promising investment opportunities. “I’m not impressed,” he said.
Shirou Terashita, chief executive of financial consultant IR Japan Inc., said Japanese business leaders pay too little attention to share prices and the cost of funding from investors when compared with peers overseas. When interest rates are low, that offers opportunities to borrow money and buy back shares, Terashita said.
“Few Japanese get that,” he said.