Japan firms exit Tokyo exchange at record pace in delisting rush
Japanese companies are leaving the Tokyo Stock Exchange at the fastest pace in over a decade, reflecting a surge in deals and management buyouts as they face more pressure to make better use of their capital.
The number of firms that delisted their shares from the TSE or announced plans to do so has reached 59 in the first half, rising from 51 a year earlier and marking the most on record for a comparable period, according to exchange data going back to 2014. If firms continue to exit the TSE at this pace, the figure for 2025 will exceed last year's annual record of 94 companies.
The trend reflects the Tokyo bourse's broad push to make the Japanese market more appealing for foreign investors by ensuring that listed companies offer high shareholder returns, while firms that aren't meeting their goals face the threat of being taken off the exchange. The TSE has called on companies to pursue goals including improving their valuations and cutting overly close ties with other companies in the form of cross-shareholdings.
Those reforms made Japanese shares one of the world's best performers in recent years, while encouraging activist shareholders to demand even more changes from company managers. For investors, increased activism has boosted calls to raise returns with measures such as stock buybacks, while mergers and acquisitions have soared.
"The decrease in the number of listed companies as a result of the activation of the capital market is a welcome development,' said Hiroshi Matsumoto, senior client portfolio manager at Pictet Japan.
Japan is following in the footsteps of overseas markets like the U.S. and U.K., where more companies have gone private over the last 20 years on stricter rules to stay listed as well as growth in private market financing.
The Tokyo exchange has emphasized since last year that its priority for listed firms is quality rather than a big numbers of companies.
"The TSE's intentions are going as planned,' said Hajime Nakajima, managing director at Deloitte Tohmatsu Equity Advisory. Companies whose shares are considered cheap will increasingly become targets of M&A and management buyouts, and "more and more of them will exit the market,' he said.
The number of listed companies on the Tokyo bourse fell to 3,842 last year, marking the first decrease since the merger of the TSE and the Osaka exchange in 2013, according to TSE data excluding figures from the Tokyo Pro Market. The number will likely fall further to 3,808 by the end of June, based on Bloomberg calculations of data including figures from the exchange.
The TSE reorganized in 2022 its equity market into Prime — with the biggest firms, Standard, and Growth — listing the smallest companies. Since then, the TSE has urged listed companies to improve corporate governance and take steps to bolster their value.
In addition, the transition period for companies that fail to meet listing standards expired at the end of March, and if they continue to fall short, they're scheduled to be delisted in October 2026 at the earliest.
Many companies left the Tokyo exchange after getting bought out by other firms and investment funds. ID&E, a construction consulting firm, became a wholly owned subsidiary of non-life insurer Tokio Marine, who saw business opportunities in its new unit's disaster prevention and mitigation tactics. Guidelines that the Ministry of Economy, Trade and Industry released in 2023 suggesting best practices for corporate takeovers have helped fuel the M&A boom.
In cases where both a company and its subsidiary were listed, a not uncommon arrangement in Japan's share market that's been criticized as leading to conflicts of interest, parent firms have bought out units to steer clear of governance concerns. The planned takeover by Japan's biggest telecom firm, Nippon Telegraph & Telephone, of its unit NTT Data Group is one example of that.
As the costs of maintaining a public listing rise and activist shareholders push for more payouts and policy changes, takeovers of companies by management are climbing. I'rom Group, a company that supports clinical trials, teamed up with U.S. investment firm Blackstone to take its shares private, in one such instance.
Tao Zhiyuan, a portfolio manager at AllianceBernstein Japan, said that Japan's chemical sector has "many interesting niche-top stocks,' but a lot of them are too small for global funds to invest in. If Japan as a whole "sees an increase in the number of large, strong companies through M&A, the number of investment targets from a foreign perspective will increase,' he said.
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