Interest flags among international firms for Tokyo Stock Exchange listing

April 24, 1994|By Thomas Easton | Thomas Easton,Tokyo Bureau of The Sun

TOKYO -- The arithmetic for a capital market is simple: it should provide more capital than it absorbs. In a symbolic repudiation of Japan's prominence in global finance, dozens of major companies are concluding Tokyo Stock Exchange fails the test.

Bell Atlantic is just one of many to recently announce delisting from the exchange, Japan's primary equity market, along with Goodyear Tire & Rubber, Eastman Kodak, and Chase Manhattan Corp.

Most of these companies joined in the 1980s when Japan was flush with cash and confidence. The Tokyo Exchange was said at the time to be evolving from a national to a global financial center -- perhaps the global financial center.

The evolution never occurred as one company after another that came to Japan in search of cheap funds recoiled from the cost, the complexity, the bureaucracy, or simply the fruitlessness of directly taping into the Japanese stock market.

Today, the exchange is barely international and is emphatically not regional. Not a single non-Japanese Asian company has listed its shares. The last foreign entrant arrived more than a year ago, Banco Central Hispano Americano. A million shares were placed with Japanese investors, a minute fraction of the outstanding total, and within months most of even this small allotment was purchased by investors outside of Japan and transferred abroad, the bank believes.

By the end of June, fewer than 100 companies will be listed on the exchange, down from a high of 127 in 1991. Others are mulling whether to exit. Most of the delisters echo the reasoning of Bell Atlantic:

"It's strictly a dollars-and-cents, bottom-line issue," said Dave Pacholczyk, a spokesman for the regional telephone company. "It costs money to be listed . . . and we weren't getting the benefit."

Exchange fees and related legal and translation expenses range from $100,000 to $300,000, vastly more than the cost in most other markets.

In return for direct fees to the Tokyo Exchange and other charges relating to translating documents and related legal expenses, companies theoretically have direct access to Japanese investors and their vast pool of savings.

The reality, however, was disappointing. Bell Atlantic shares are currently held by only about 150 investors, said Mr. Pacholczyk. Kodak, better known because its film sells broadly in Japan, has fewer than 1,500, and had witnessed a steady decline in interest. Aggregate trading data compiled by the exchange underscores the collapse in interest, with the total volume of trading in foreign firms dropping from more than 500 million shares in 1991 to about 100 million in 1993. "It's sad," said an official at the exchange, as he read off the numbers.

The unwillingness of Japanese investors to invest in overseas securities through the local exchange is one of the clearer indications of the deep insularity that pervades Japan's financial markets, despite the country's vast wealth and its highly publicized investments abroad.

Market research is minimal. Japanese investors buy what the brokerage firms sell and the powerful Ministry of Finance attempts to stabilize the market by influencing the amount of shares available and the amount of money going into the market. Cross-share holdings between Japanese firms can have a large impact on prices.

There is little room in this structure for pushing stocks based on underlying analysis of a company, for instance Bell Atlantic's prospects in the communications business.

Even if such analysis did, in fact, exist, and even it it were successful in pinpointing good investments, the extraordinary appreciation of the yen dramatically reduced the value of investments denominated in other currencies.

Companies occasionally list on exchanges for reasons other than developing a broader shareholder base. Markets can perform an important function in giving an outside appraisal of worth, valuations, which in turn can assist in channeling capital to high returns. But the minimal trading in foreign stocks has made Japanese price appraisals irrelevant. Certainly the lofty valuations the Japanese give to domestic stocks has never spread to foreign issues.

A third reason for listing on the Tokyo exchange defies financial textbooks but may nonetheless have played a critical role -- perhaps the critical role -- in the decision of many companies. "In order to get established in Japan, they had to show a long-term presence and determination and the stock market listing was an important psychological step," said Richard Werner, an economist at Jardine Fleming Securities, a major investment firm.

Ultimately, however, the impact, companies say, was minimal, as has been the impact of delisting, putting to rest fears of the contrary.

Indeed the defections come at a time when the Japanese themselves seem to have despaired of equity markets. But oddly, foreigners have not -- at least those foreigners attempting to bring money in.

Data on capital flows tracked by Mr. Werner indicate that in recent months, investment money flowing into Japan exceeded Japanese investment going abroad by a margin of almost 10-to-1, with much of that supporting Japanese stocks. The most recent, modest, internationalization of the Tokyo Stock Exchange has been when outsiders fund Japan, not the reverse.

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