Suspicion of misstatement regarding the disclosure of cross-shareholdings and the sale of investment shares | 極東貿易株式会社 2020
極東貿易
If our proposals are approved and Kyokuto continues 100% payout ratio, the estimated share price is;
>JPY 3,000(*)
*Calculation based on dividend yield. Please find the detail of calculation in “our shareholder proposals”.

Suspicion of misstatement regarding the disclosure of cross-shareholdings and the sale of investment shares

<Regarding suspicion of misstatement regarding the disclosure of cross-shareholdings>

Kyokuto disclosed in its financial statements that it held two cross-shareholdings as of March 31, 2019. As other listed shares held by the Company are classified as stocks held for pure investment purposes, the cross-shareholdings account for only 20% of the total listed shares held by the Company.

However, Kyokuto has held the same number of shares issued by Japan Process Development (JPD) (ticker 9651) for 10 years but does not disclose it as one of its cross-shareholdings. Instead Kyokuto explains it holds the shares for pure investment purposes, even while JPD reports that it holds Kyokuto’s shares as cross-shareholdings “to promote global collaboration focusing on the development of control systems”.

 This raises suspicion that despite knowing that they are indeed cross-shareholdings, Kyokuto is classifying them as holding for pure investment purposes, which further raises concerns that possibly other stocks should also be disclosed as cross-shareholdings.
With the revisions to the Corporate Governance code, investors are now increasingly paying attention to cross-shareholdings. If Kyokuto misstates these holdings, they are trying to deceive investors.

<Our thoughts on selling shares>

Kyokuto states the purpose for the cross-shareholdings is to “be a supplier and collaborate to develop business”. However, we do not understand how cross-shareholdings serve this purpose. Kyokuto should not be trying to develop business by holding shares, instead business relationships should be developed based on the merits of the products and services offered to its business partners. Moreover, we can’t condone the holdings of securities be it for pure investments purposes or as cross-shareholdings. Shareholders become owners of the company with the expectation that the company will make money from its core business not from equity investments.  Kyokuto should promptly sell its shares and use the proceeds to improve shareholder value.

Topic: Does Kyokuto holding shares for ‘pure investment’ purposes violate the Articles of Incorporation?

In the Articles of Incorporation, it is stipulated that Kyokuto’s corporate purpose is to conduct business as a trading company such as “export, import, sales and wholesale sales of and agent services” with nothing specified regarding investment in, or management of securities. Despite that the Company continues to hold stocks for ‘pure investment’ purposes.

<Kyokuto’s Articles of Incorporation>

(Source:Kyokuto website

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This website is for AGM in 2020. Please find our latest proposal in 2021 here.

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