Activist investors keep on pushing firms in Japan despite virus crisis

25 Jun, 2020 01:51
source: Singularity Financial

The change in stance comes as Japan – the second-biggest market for activists after the United States – enters peak season for company annual general meetings (AGMs), where proposals for measures such as dividend increases and share buybacks would normally be presented.

Activist investors have submitted proposals to the annual general meetings of 23 listed firms this year as of June 22, according to data from IR Japan Holdings Ltd. That already surpasses the all-time high of 16 the year before.

Money managers including Oasis Management Co., RMB Capital and Asset Value Investors Ltd. are urging companies to buy back shares, arguing they can easily do so despite the impact of the pandemic. It’s a country where return on equity for companies in the benchmark Topix index is less than half the level for those in the S&P 500 Index in the U.S.

Fifty-four companies have so far received shareholder proposals for this year’s AGMs in June as of Tuesday, matching the record set last year, according to data compiled by Mitsubishi UFJ Trust.

“It’s a problem for shareholders to use the virus as an excuse not to seek better returns,” said Masakazu Hosomizu, a partner and portfolio manager at RMB Capital. “Japanese companies still have a lot of room to improve from a global perspective.”

Hong Kong-based Oasis submitted shareholder proposals for buybacks at the builder Hazama Ando Corp. and the warehousing and distribution company Mitsubishi Logistics Corp. It also called on elevator-maker Fujitec Co. to cancel all its treasury shares.

Proposals from activists kept coming in May and June

IR Japan, which helps companies defend themselves against activists, said some people had hoped the virus would slow the investors down in Japan.

“There was some optimism that activity from activist shareholders would be dented,” said Atsuko Furuta, a director at the firm. “But proposals from activists kept coming in May and June and a sense of nervousness has returned,” she said.

It’s “very difficult” for companies to figure out how to run their business during the coronavirus while also dealing with activists, she said.

Other market participants are loosening their voting standards to give companies more freedom this year because of the virus. Institutional Shareholder Services, the influential proxy adviser, said in May it would temporarily relax a voting criterion for firms to have return on equity of at least 5%.

Sumitomo Mitsui DS Asset Management Co., a Tokyo-based money manager, said it won’t apply numerical standards for ROE, dividends or earnings. But activists say their requests are far from asking too much — and have taken the pandemic into account

“Japan has the strongest balance sheets globally,” Oasis’s Fischer said. “The devil’s in the details.”

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