TOKYO -- Japanese companies are unloading their cross-held shares.
At the end of fiscal 2015, corporate Japan held 46.5 trillion yen ($464 billion) worth of shares in other companies, down nearly 8 trillion yen from a year earlier. Given that the Topix index tumbled about 13% during the 12 months, the Nikkei estimates that 1.06 trillion yen worth of sales amounted to the unwinding of cross-shareholdings.
Some 1,024 companies, 47% of the 2,194 listed companies that The Nikkei surveyed, appear to have unloaded cross-held shares during the fiscal year.
The Nikkei looked only at companies that close their books in March and have financial data available going back to the fiscal year ended March 2006. "Other securities," excluding shares in subsidiaries and affiliates, were regarded as cross-shareholdings.
Former zaibatsu companies -- the big conglomerates that ruled Japan's economy through the end of World War II -- reduced their cross-shareholdings markedly. The Bank of Tokyo-Mitsubishi UFJ, affiliated with Mitsubishi UFJ Financial Group, unloaded part of its stakes in Mitsubishi Chemical Holdings and Mitsubishi Gas Chemical. Mizuho Bank, a unit of Mizuho Financial Group, reduced its stakes in Credit Saison and JFE Holdings.
Also, Medical equipment maker Terumo and Kyowa Hakko Kirin, a pharmaceutical and biotechnology company as well as Mitsubishi Chemical Holdings and construction company Obayashi cut their cross-held shares.
A new corporate governance code that was implemented in June 2015, encourages companies to emphasize return on equity. The code also calls on companies to reduce the amount of shares they hold simply to maintain business relationships and prevent takeovers. In addition, corporate governance reports now must list reasons why companies are keeping their cross-held shares.
These shareholding relationships have continued their decline this summer. In June, Mitsubishi Electric, Mitsubishi Corp. and Mitsubishi Heavy Industries sold part of their stakes in Mitsubishi Research Institute. On Aug. 9, Suzuki Motor and Fuji Heavy Industries, which makes Subarus, said they had sold their entire shareholdings in each other. On Wednesday, Nissin Foods Holdings, Daiichi Sankyo and Aichi Bank said they will unwind part of their cross-holdings with Ono Pharmaceutical.
"Unwinding cross-shareholdings is in accordance with the corporate governance code, and it will help improve capital efficiency," a Nissin Foods Holdings representative said.
Although these holdings are declining, the balance of cross-held shares at all companies still accounts for more than 10% of the total net assets of 347 trillion yen, posted in the previous fiscal year. Not all unrealized profits and losses are reflected in corporate earnings, but cross-shareholdings will likely weigh on earnings if stock prices remain sluggish.
Kengo Nishiyama, senior strategist at Nomura Securities, said numerous companies are still putting off their unwinding duties because they like the long-term stability that cross-holding relations bring.
The corporate governance code actually calls on Japanese companies to do even more, despite mounting concerns over tightening corporate earnings and a stock market that seems to lack upward momentum.