Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Event-Driven

<ul>
<li>The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.</li>
<li>
<a href="https://www.smartkarma.com/entities/ms-ad-insurance-group-holdings" target="_blank" data-smartkarma-citation="entities:631:1" rel="noopener">MS&amp;AD Insurance (8725 JP)</a> had a stake over US$100m in at least 29 listed Japanese stocks, amounting to a total of US$17.4bn.</li>
<li>In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.</li>
</ul>


The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.

MS&amp;AD Insurance (8725 JP) had a stake over US$100m in at least 29 listed Japanese stocks, amounting to a total of US$17.4bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.


MS&AD Cross-Shareholding - At Least US$20bn of Cross-Shareholding to Sell

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Excluding the special factor of companies applying transitional measures moving to standard, the pace of natural decrease of prime market listed companies is moderate.</li>
<li>Companies with high foreign shareholdings and large market capitalization are already highly valued. Companies that are not have investment opportunities that are often at a discount due to liquidity.</li>
<li>Nearly half of the companies are companies with large shareholders holding more than 20% equity; investment opportunities are expected to increase as companies go private through TOBs and MBOs.</li>
</ul>


Excluding the special factor of companies applying transitional measures moving to standard, the pace of natural decrease of prime market listed companies is moderate.
Companies with high foreign shareholdings and large market capitalization are already highly valued. Companies that are not have investment opportunities that are often at a discount due to liquidity.
Nearly half of the companies are companies with large shareholders holding more than 20% equity; investment opportunities are expected to increase as companies go private through TOBs and MBOs.


A Market with Small Value Stocks and Investment Opportunities Due to Delisting, Although Taking Time

<ul>
<li>Few companies have disclosed their cost of capital, so TSE provided specific indicators for this purpose. On the other hand, allergies to cost of capital disclosure are persistent in companies.</li>
<li>It is a concern that many companies still have more fixed remuneration than variable remuneration for compensation incentives, which are a mechanism for achieving capital profitability goals like ROE.</li>
<li>Engagement with overseas investors can be effective, but there are challenges, such as the existence of passive funds and companies with small market capitalizations that are not eligible for investment.</li>
</ul>


Few companies have disclosed their cost of capital, so TSE provided specific indicators for this purpose. On the other hand, allergies to cost of capital disclosure are persistent in companies.
It is a concern that many companies still have more fixed remuneration than variable remuneration for compensation incentives, which are a mechanism for achieving capital profitability goals like ROE.
Engagement with overseas investors can be effective, but there are challenges, such as the existence of passive funds and companies with small market capitalizations that are not eligible for investment.


Guidebook for Raising P/B Published, but Still Much Work to Be Done to Achieve Goals

<ul>
<li>Code of Corporate Conduct lacks explanation of the role to be played by a listed company and the background. Consequently, there're cases where the same companies have repeatedly committed misconduct.</li>
<li>For companies that are good at pretending that they are trying, without any substance to their corporate governance, making the provisions of Corporate Governance Code mandatory effort won't be effective.</li>
<li>TSE's request seems to be an effort obligation. It is good that the substance of the company's improvement plan, which only made an effort to improve, will be improved.</li>
</ul>


Code of Corporate Conduct lacks explanation of the role to be played by a listed company and the background. Consequently, there're cases where the same companies have repeatedly committed misconduct.
For companies that are good at pretending that they are trying, without any substance to their corporate governance, making the provisions of Corporate Governance Code mandatory effort won't be effective.
TSE's request seems to be an effort obligation. It is good that the substance of the company's improvement plan, which only made an effort to improve, will be improved.


What Happens to the Effectiveness of TSE Requests when They Become Effort Obligations?

<ul>
<li>Although many institutional investors' voting criteria apply the rule of "support the proposed appointment of top management director if one female director is nominated," more in-depth examination should be conducted.</li>
<li>Agenda based on TSE's request isn't easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.</li>
<li>The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.</li>
</ul>


Although many institutional investors' voting criteria apply the rule of "support the proposed appointment of top management director if one female director is nominated," more in-depth examination should be conducted.
Agenda based on TSE's request isn't easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.
The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.


Raising ROE May Require Raising Proxy Voting Guidelines

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

MS&AD Cross-Shareholding - At Least US$20bn of Cross-Shareholding to Sell

Along with its results announcement today, MS&AD announced that it will accelerate its cross-shareholding unwind and is targeting a sale of around...

Sumeet Singh

A Market with Small Value Stocks and Investment Opportunities Due to Delisting, Although Taking Time

I would like to discuss the issues on the April 9 Nikkei Shimbun article, "Screening in TSE Prime Market: 20% Decrease in Number of Companies in 2...

Metrical Inc

Guidebook for Raising P/B Published, but Still Much Work to Be Done to Achieve Goals

I would like to discuss the issues on the TSE's March 31st disclosure document by TSE, "Measures to Achieve Management Conscious of Cost of Capital...

Metrical Inc

What Happens to the Effectiveness of TSE Requests when They Become Effort Obligations?

I would like to discuss the issues on the material "Review of Corporate Code of Conduct" at the "15th Follow-up Meeting on Review of Market...

Metrical Inc

Raising ROE May Require Raising Proxy Voting Guidelines

In summary, I would like to discuss the issues on the Nikkei Shimbun article of March 29, "March Shareholders' Meetings, Stock Market High, but...

Metrical Inc