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Japan-Update

More than 2,000 Japanese companies effectively debt-free

Majority of listed names log positive net cash on robust earnings

TOKYO -- A record 2,016 listed companies in Japan were effectively debt-free at the end of fiscal 2016, continuing a trend toward more solid finances that raises questions about how corporations should spend their cash.

Companies considered effectively debt-free -- those having positive net cash --  increased by 60 on the year and topped the 2,000 mark for the first time. They accounted for 58% of all listed companies, up 1.6 percentage points. A total of 142 companies newly turned debt-free.

Nikkei Inc. calculated net cash -- cash, deposits, short-term securities holdings and other funds minus interest-bearing debt such as borrowings and bonds -- of listed corporations, excluding financial and certain other companies.

This trend owes largely to earnings improvement. Net profit at Japanese companies that close their books in March climbed to an all-time high last fiscal year -- with nearly 30% reporting their highest-ever profit. Many channeled part of the increased cash flow into debt reduction.

Of the companies that newly turned debt-free, construction companies saw some of the biggest increases in net cash. Kajima had the largest gain of 137.8 billion yen ($1.25 billion), climbing to a positive 11.4 billion yen. Haseko ranked second, with an 85.2 billion yen rise to 63.2 billion yen in the black.

Big gains were also had by TDKDai Nippon Printing and Mazda Motor. Chemical companies including Kuraray and Daicel logged notable net-cash increases as well, aided by better market conditions. 

Even more companies are expected to enjoy greater financial health in the current fiscal year. Shimizu is seen turning effectively debt-free for the first time since it shifted to consolidated earnings in fiscal 1986. Back in fiscal 1992, the general contractor's interest-bearing debt peaked at more than 1 trillion yen as bubble-era real estate investments backfired. This fiscal year, the tally is seen shrinking to around 340 billion yen.

Tosoh is also expected to become debt-free this fiscal year. With infrastructure demand rising in Asia, increased shipments of urethane materials and polyvinyl chloride have significantly improved cash flow. The chemical company will continue to repay bank loans, as it did last year.

The aggregate profit of companies that close their books in March is seen rising to a new height in the current fiscal year. But hoarding cash pushes down capital efficiency, measured in return on equity. Investors see low returns as a big turnoff. Cash-rich companies are likely to face pressure to make growth-oriented investments, such as capital spending and acquisitions, or give back to shareholders via dividend increases and share buybacks.

(Nikkei)

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