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Economy

Corporate Japan unloading more cross-held shares

TOKYO -- About 60% of major Japanese businesses with cross-shareholdings sold off stakes in other listed companies last fiscal year, heeding calls to strengthen corporate governance and improve capital efficiency.

     Specifically, 168 of the 281 Nikkei Stock Index 300 components that had cross-holdings in other companies took at least one such stock out of their portfolios.

     Companies held slightly more than 30,000 stocks at the end of fiscal 2014, down about 10% from the end of fiscal 2010.

     Many group companies once part of prewar Japan's zaibatsu conglomerates sold shares in one another.

     Sumitomo Corp. reduced the number of companies in which it owns shares by 10% in the year ended March. "We determine whether to hold stocks based on medium- to long-term earnings prospects," Executive Vice President Hiroyuki Inohara said. The trading house unloaded a portion of its holdings in companies including Nippon Steel & Sumitomo Metal, Mazda Motor and Sumitomo Rubber Industries for 60 billion yen ($482 million).

     Mitsubishi Corp. downsized its Mitsubishi Materials and Nisshin OilliO Group stakes after evaluating profitability.

     Nikon, a key Mitsubishi group company, reduced its holdings in Mitsubishi Electric. Meanwhile, Mitsui & Co. sold shares in Mitsui Engineering & Shipbuilding.

     The same trend is apparent even in the financial sector, where falling stock prices weigh heavily on operations.

     Mizuho Financial Group has said it will do away with cross-shareholdings in principle. Kubota responded to Mizuho's proposal, selling more than 5 million Mizuho shares last fiscal year.

     Food companies Nissin Foods Holdings and Ezaki Glico unloaded a portion of each other's shares last fiscal year. House Foods Group shrank its Nissin Foods holdings.

     The uniquely Japanese practice of companies holding one another's shares to ensure a steady flow of business was once much more commonplace. Back in 1989, cross-held shares accounted for more than 50% of the overall stock market in Japan by market value, according to Nomura Securities. But as foreign investors became a major presence, criticisms grew that cross-holding undermined management discipline and capital efficiency.

     With stock prices falling after the bursting of the economic bubble in Japan, cross-shareholdings continued to decline and reached a postwar low of 16.3% in fiscal 2014, according to preliminary figures.

     A new corporate governance code introduced in June is seen accelerating the trend. The guidelines call on companies to state the rationale for their cross-shareholdings, a provision seen prompting more to take a second look at the stocks they own.

(Nikkei)

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