Japanese firms earn $57 billion from latest divestment

Japan’s listed companies, many of which operate in the energy sector, have earned the equivalent of $57 billion in divestments over the past three years as they seek to boost their capital efficiency and stock valuations.

Many of Japan’s largest listed firms are conglomerates that include various businesses. But their market value is below the value of the separate businesses, the so-called conglomerate discount, Nikkei Asia reports.

The desire to increase market value and return on investment has led to a shift in strategies among Japanese firms in recent years.

In addition, the Tokyo Stock Exchange introduced new regulations aimed at improving capital efficiency, shareholder value, overseas investment and management accountability.

As a result of these regulatory changes and a shift in corporate mindset, Japanese conglomerates sold subsidiaries, affiliates and project stakes to exit less profitable and non-strategic assets.

Over the past three years, these divestments have brought Japanese listed firms $56.8 billion (8 trillion Japanese yen), according to cash flow statements compiled by the Nikkei.

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Some of these asset and unit sales occurred in the energy metals and mining industries.

Tokyo Gas Co., Ltd, for example, earlier this year completed the sale of its interests in a portfolio of Australian liquefied natural gas (LNG) projects to MidOcean Energy. The buyer is formed and managed by EIG, an institutional investor in the global energy and infrastructure sectors. Last year, Saudi oil giant Aramco entered the international LNG market by signing definitive agreements to buy a strategic minority stake in MidOcean Energy for $500 million.

Eneos Holdings, a Japanese energy group, said in June that its subsidiary JX Advanced Metals Corporation will sell 19% of its 49% ownership in copper miner SCM Minera Lumina Copper Chile to LMC Caserones SpA, a wholly owned subsidiary of Lundin Mining Corporation.

Mitsubishi may consider a sale, among other options, for Mitsubishi Tanabe Pharma Corporation, the conglomerate said earlier this week in response to media speculation.

“We are continuously reviewing the group’s ideal business portfolio for all our businesses, including pharmaceuticals, and are promoting portfolio reform considering all options, including divestment,” Mitsubishi Chemical Group Corporation said.

The disposals are part of a wave of asset sales as Japanese firms look to shore up their market valuations and improve capital efficiency, which is now part of a “name and shame” list of companies taking action of capital efficiency. The list has been published monthly by the Tokyo Stock Exchange (TSE) since the beginning of this year.

Although companies are not required to disclose such measures and do not face penalties if they do not, many firms are selling assets, including in the energy sector.

Regulatory changes, led by the Tokyo Stock Exchange, could improve share prices for companies making governance changes, such as improving board independence, Morgan Stanley said in a June recovery and turnaround report in the Japanese economy and stock market.

After three decades of stagnation, Japan is now poised for strong nominal GDP growth this year to 3.1 percent, which would put it on track for its strongest two-year growth since 1991, they said investment bank analysts.

Japan’s corporate governance reforms have helped improve return on equity, which measures a company’s profitability.

“Japan’s economy is undergoing a significant transformation with the end of deflation, the return of steady growth and renewed corporate dynamism, which could create a compelling opportunity for global investors,” Morgan Stanley said.

Japanese stocks remain the bank’s top picks in Asia and are preferred over emerging markets in general.

By Tsvetana Paraskova for Oilprice.com

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