'Japan Looks To Keep Companies Honest About Cross-Shareholding Cuts; Tighter Disclosure Rules Aim To Keep Shares From Being Repurposed In Name Only' - Nikkei Asia

https://asia.nikkei.com/Business/Markets/Equities/Japan-looks-to-keep-companies-honest-about-cross-shareholding-cuts#:~:text=Japan%20looks%20to%20keep%20companies%20honest%20about%20cross%2Dshareholding%20cuts,-Tighter%20disclosure%20rules&text=TOKYO%20%2D%2D%20Japan%20will%20require,actual%20intentions%2C%20Nikkei%20has%20learned

TOKYO -- Japan will require listed companies to disclose more information if they reclassify strategically held shares as being owned for investment purposes, amid concerns that some businesses are concealing their actual intentions, Nikkei has learned.

This comes as institutional investors step up pressure on companies to unwind "strategic" shareholdings -- commonly used in Japan to maintain business relationships -- that do not contribute to growth. Around 2,600 publicly listed enterprises, or two-thirds of the total, cross-hold shares from at least one company.

Companies that change the reason they own a particular stock from strategic purposes to investment will need to explain why in their annual reports, as well as state whether the issuer of the shares has consented to an eventual sale. This aims to ensure that they are not trying to pare cross-shareholdings on paper while actually maintaining them.

Under the current rules, only the issuer's name and the shares' value must be disclosed.

The changes will be included in the Financial Services Agency's annual strategic priorities report due out as early as this month, with the aim of implementing them starting with annual reports for the fiscal year ending March 2025.

Currently, companies must disclose their 60 largest cross-shareholdings as well as any that amount to more than 1% of their capital stock. Shares held for investment purposes have much lighter requirements, with companies needing to report such holdings only if the size of their stake in a given company changed that fiscal year.

Amid the pressure to cut cross-shareholdings, the amount of shares being switched from the strategic category to investment has surged, nearly doubling to 637.9 billion yen ($4.37 billion) in the fiscal year ended March 2024. Regional banks account for 70% or so of that total, with at least one reclassifying tens of billions of yen in stock at once.

Every year, the FSA examines annual reports to confirm their accuracy. Its fiscal 2023 survey cast doubt on the actual purpose of companies' shareholdings in multiple cases, such as companies reclassifying cross-shareholdings without the owner's consent for a sale, or ostensibly owning shares to trade but holding on to them for years without selling any.

The agency plans to expand this review from around 100 companies in fiscal 2023 to all listed enterprises in fiscal 2024.