According to foreign media reports, industry analysis shows that Toyota Group is accelerating the reduction of cross-shareholding. This move not only responds to the market’s requirements for capital efficiency, but also raises funds for the company’s electrification transformation.
According to the Toyota Group’s Toyota Motor Company,Denso, Aisin and Toyota Tsusho, and the Nikkei News calculated the changes in the Toyota Group’s investment portfolio. In the fiscal year ending March this year, the group sold a total of 1.21 trillion yen (about $8.3 billion) of shares, an increase of about 50% from 837 billion yen in the same period of the previous fiscal year. During the same period, the above-mentioned companies reduced their holdings of 70 different stocks, and the number of companies currently holding shares has dropped to 153, a decrease of nearly half from two years ago.
Image source: Toyota Motor
Among them, Denso performed particularly well, selling a total of 438.5 billion yen of shares, 3.5 times that of the previous year. The company completely divested its holdings of Aisin and HarmonyJet Tegertand other shares of enterprises within the group. Although Denso has purchased shares of ROHM and other companies to strengthen its position in the semiconductor field, it has sold all cross-shares of the five listed companies it had previously invested in.
Toyota sold 643.3 billion yen in shares, nearly doubling year-on-year. The scope of its cross-shareholding reduction is not limited to intra-group companies, but also includes liquidating shares of Sumitomo Mitsui Financial Group and reducing its holdings in telecommunications company KDDI.
According to a securities report released by Toyota last week, as of the end of March this year, the company’s cross-shareholding in 34 listed companies was 2.95 trillion yen, a decrease of 16% from a year ago, and the number of companies held decreased by 6.
Many of the Toyota Group’s companies originally originated in Toyota Industries and have maintained a group structure of cross-shareholding for a long time. Currently, the group is pursuing restructuring, including the privatization of Toyota Industries through a tender offer. The companies involved in the takeover offer are selling all of their shares in Toyota Industries.
Under the restructuring plan, DENSO will no longer invest in any parts manufacturers within the group, and Aisin will only retain JTEKT as a component company within the group.
The Toyota Group’s move to undo cross-shareholding will have a significant impact on other Japanese companies. As of the end of March 2024, Toyota’s cross-shareholding was the fifth largest among Japanese listed companies and the first in the non-financial sector.
Japanese companies are partly due to the pressure of increasingly strict market regulation. In March 2023, the Tokyo Stock Exchange encouraged listed companies to focus on the cost of capital and stock prices, prompting many companies to set price-to-book ratio targets of 1 or higher. Cross-shareholding has long been criticized by institutional investors, who see it as a form of management circumvention of market oversight.
Today, the challenge for businesses is how to efficiently invest the proceeds from selling cross-shareholdings. Toyota has set a 20% return on equity target, indicating that it is turning to improve the profitability of its after-sales business such as autonomous driving and parts supply.
According to the Nomura Capital Markets Institute, the cross-shareholding ratio of Japanese listed companies has fallen to about one-fifth of the 1990 level. Senior analyst Kengo Nishiyama said the practice of cross-holding is “nearing its end.”
Cross-shareholding was once a source of stability for businesses, but now companies must find new investors. With the rise of activist investors, there is an urgent need for companies to build a medium- to long-term growth-oriented shareholder camp.
