Last week, the head of the Tokyo Stock Exchange Atsushi Saito talked about the need to consider new rules for share issues that unfairly dilute minority shareholders, and in some cases are close to criminal. By his words, some firms are using a framework that allows them to issue new stock to a third party, often to a little-known fund in one of offshore jurisdictions.
The head of the Tokyo Stock Exchange said that Japanese companies needed to find the ways to improve corporate disclosure when changing their capital structure. He pointed to cases when firms issue stock to vehicles in the British Virgin Islands, Cayman Islands, and then disclose very few information about those entities even though they are purchasing a large share in a company and significantly diluting the value of existing shares.
The recent cases mentioned by Saito involved wedding ceremony firm MOC Corp., and the failed English-language school NOVA Corp. To rescue itself from bankruptcy, NOVA Corp. issued share warrant stock 70 mln yen (about $610,000) worth that would allow the two BVI-registered funds to purchase all the shares. However, the plan failed, and NOVA had to apply for protection from creditors.
On a corporate governance seminar organised by investment bank UBS, Saito told: “In principle, third-party stock allocations shouldn’t happen even if there is a system in placeâ€, â€Stricter rules would boost trust in the Japanese market.” He also said, “From our perspective, there is a smell of criminality to all this. These people are very minor players, but their actions violate Japan’s capitalist system.”